If a 401K is rolled over to a standard IRA then converted to a Roth IRA in the same ear what is the taxable amount, the Standard IRA value or the converted Roth Value?

[babsjhat]

This is confusing because i have a 1099-R for the rollover amount and 2 Form 5498, 1 showing the total rollover amount and the other showing the converted amount after taxes.

[Texas Roger · Accepted solution]

The standard IRA value is what is taxed.

[dmertz]

I'm guessing that this question was asked because some amount was withheld for taxes, otherwise the amount distributed from the traditional IRA would be the same as the amount converted to Roth.  The entire amount that was distributed from traditional IRA in the process of performing the Roth conversion *is* taxable.  If some was withheld for taxes, in additional to being subject to income tax, the portion withheld for tax may also be subject to an early distribution penalty.  If the conversion was reported on a code 2 Form 1099-R, any amount withheld for taxes should have been reported as a separate distribution on a separate code 1 Form 1099-R, but some custodians mistakenly include the tax withholding on the code 2 Form 1099-R.

[babsjhat]

It is more complicated. The original transfer from 401K  to traditional IRAis correct as Dist. code G but it is being included in the total distribution column on the Turbo Tax 1099-R sheet together with the Conversion amount on the other 1099-R.  Therefore these transactions are both listed as distributions

[dmertz]

In fact, the both *are* distributions (income) which must be reported, but the rollover from the 401(k) to the traditional IRA is not a taxable distribution (and is not taxable income).  Properly entered to indicate that the code G distribution was *not* rolled over to any kind of Roth account (it was rolled over to a traditional IRA), TurboTax will include it on Form 1040 line 16a or Form 1040A line 12a but exclude it from the amount on line 16b or 12b, and will place the word ROLLOVER next to this line.  The taxable distribution from the traditional IRA will be included on line 15b or 11b.

[babsjhat]

To me this is a program flaw. Turbo Tax should show Taxable & non-Taxable distributions on their summary page in order to verify if all entries are correct instead of having to to check through edits.

[dmertz]

This is a common complaint.  Despite being rather misleading to most people, it's technically correct.  All amounts in box 1 of a Form 1099-R are income, it's just that not all amounts are taxable income.

[babsjhat]

thank you for your help