IRS says I need to explain my retirement situation in a statement. How do I do that?

Turbotax supports your situation when it asks you what did you do with the money from that distribution.

@tgmalpass 

Yes, you can report your 1099-R and that the amount was rolled over. 

Start with your 1099-R. Hopefully, it shows the code "G" in box 7. If it does, just enter the form in the 1099-R section.

If you have a "1" or "2" in box 7, you will need to watch for the screen titled, "What did you do with the money from (your broker's name)?" Pick the first answer, "I moved the money to another retirement account."

Pick the first answer to the next question, "I rolled over all of this money to an IRA or other retirement account."

That will show the distribution on your return, but it will not be added to your taxable income. If you are asked to create a statement after you do that, it should read something like:

"I received a distribution from (name of bank or broker and account number) on (date of distribution). I rolled over the amount to (name of bank or broker and account number) on (date of deposit)."
 

Hi there -

Thanks for your response!  When I add the 1099-R form into Turbo Tax, as it is, I don't get any questions regarding what I did with the funds.  It's a disability withdrawal ("3" in box 7) and the rollover was made afterwards by a few days.  It assumes the whole amount is taxable because of this.  When I change box 2a to adjust the taxable amount, subtracting what I rolled over, it does ask, but I've been told by a live TurboTax advisor not to alter the values given in the form.  

Any further thoughts would be appreciated.

Thanks!

You need to have two 1099-Rs to report the disability withdrawal from your retirement account. If the rollover was made to the same account that it was withdrawn from, that organization can issue a 1099-R with code 3 in Box 7 to indicate the amount that was withdrawn from your account, and another 1099-R with code G to show the amount that was rolled over into your account.

Thanks!  

The distribution was from the same account.  The organization (Fidelity) told me that normally, a Form 5498 would be generated to reflect the rollover, but because it was rolled back into the same account, none would be generated. I'll ask about the second 1099-R with a G code, but it looks like that's for a direct rollover.  They're calling this "an indirect rollover back into my workplace retirement account," because I put back most of the distribution having it a couple of days.

Your case is an indirect rollover which you have to indicate in TurboTax to exclude the amount from taxation.

This is how you'll proceed:

1. In TurboTax, open your tax return
2. Click on Federal in the left-hand column, then on Wages & Income
3. Continue and locate the section Retirement Plans and Social Security and click on Show more
4. Click Start next to IRAs, 401(k), Pension Plan Withdrawals (1099-R).
5. Enter your form 1099-R and follow the interview
6. When you arrive to the page Tell us if you moved the money through a rollover or conversion, click on the radio button I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days)

Hi there -

The problem is that the software never asks me whether I moved any money through a rollover at all, when I enter the 1099-R.

You may have entered your form with an answer that is not letting you make the changes you need.  You can delete the form and re-enter it using the steps lined out by MinhT1.

To delete a specific form in TurboTax Online you can follow these steps:

1. Within your return, click on Tax Tools in the black menu on the left side of the screen.
2. Click on Tools.
3. Click on Delete a Form. 
4. Scroll down to your Form 1099-R and click Delete.
5. Under Federal in the black menu bar click Wages & Income to get back into your tax returns.
6. Proceed with the steps listed above to re-enter your Form 1099-R.

@tgmalpass

Hi -

Thanks.  I followed the instructions to delete and re-add the 1099R, but still don't get asked any rollover questions.  I have seen them before if I changed some entries of the 1099R form, but not now.

A code 3, in box 7 of form 1099-R indicates a disability distribution and then puts the income with other wages on your Form 1040.  It also indicates that a penalty is not required and that you are under retirement age.  The code is the reason the questions are not coming up.

The income must be reported however, if you have wages you may be able to make a contribution to your IRA for 2022 in the amount you replaced in the plan (this assumes it's an IRA). 

You may be able to have Fidelity reissue a corrected 1099-R with only the amount you actually kept in 2022.

• Rollovers of Retirement Plan and IRA Distributions

Hi there -

I'm not sure what you mean by, "The income must be reported however, if you have wages you may be able to make a contribution to your IRA for 2022 in the amount you replaced in the plan (this assumes it's an IRA)."  I'm simply not sure what this mean.  The account is a 403(b) account, not an IRA.

TurboTax treats a code-3 distribution received before normal retirement age as being ineligible for rollover.  TurboTax therefore ignores any indication by you that you did a rollover.  It's unusual for a payer to use code 3 for anything but a disability pension (which generally is ineligible for rollover) because the payer normally does not want to be involved in determining your disability status except in the case of a disability pension.

Regarding the indirect rollover back to the same account, something doesn't seem right about what was said.  An indirect rollover is required to be reported on Form 1099-R because during an indirect rollover the funds come under your control.  It's only your actions after a reportable distribution has been made (the rollover) that makes the distribution nontaxable.  It's possible that, if funds were distributed in error, the plan might pretend the distribution never happened if they take back the erroneous distribution.

Hi there - 

I'm not sure if this will help, but for background, it was a disability withdrawal from my 403(b) plan (I'm disabled but have my workplace retirement account).  I realized I had taken too much out, and returned most of it.  I didn't really know anything about rollovers at the time, I was just trying to be cautious about my withdrawal.  Fidelity said I could repay some, because it was a disability withdrawal, but that it wouldn't show up in my tax form a the end of the year to reflect it.  If it had been from a separate account, I would have gotten a Form 5498, I think, reflecting this. Fidelity said as long as I could show that it was paid back (easy to do) I could explain why the total distribution wasn't taxable, just the part I didn't return would be.  It's good to know the "3" in box 7 is the reason for the lack of rollover questions (just because I'm happy for any answers at this point).  I guess the only question left is can I explain this and efile or print out my 1040 and all and mail it with an explanatory statement.

@dmertz 

Hi there - 

I'm not sure if this will help, but for background, it was a disability withdrawal from my 403(b) plan (I'm disabled but have my workplace retirement account).  I realized I had taken too much out, and returned most of it.  I didn't really know anything about rollovers at the time, I was just trying to be cautious about my withdrawal.  Fidelity said I could repay some, because it was a disability withdrawal, but that it wouldn't show up in my tax form a the end of the year to reflect it.  If it had been from a separate account, I would have gotten a Form 5498, I think, reflecting this. Fidelity said as long as I could show that it was paid back (easy to do) I could explain why the total distribution wasn't taxable, just the part I didn't return would be.  It's good to know the "3" in box 7 is the reason for the lack of rollover questions (just because I'm happy for any answers at this point).  I guess the only question left is can I explain this and efile or print out my 1040 and all and mail it with an explanatory statement.

You can get the desired taxable result on your Form 1040 by splitting the Form 1099-R into two parts, one with code 3 for for the portion not rolled over and the other with code 1 for the portion rolled over.  The only difference with an e-filed tax return is, if there is tax withholding shown in box 4, the Form 1099-R on which you include the tax withholding (I would put it on the code 3 Form 1099-R as long as is isn't more than the portion you did not roll over) will be included in your e-filing and won't match the original code-3 Form 1099-R.  That should not be a problem, though, since the amount shown on From 1040 line 5a will be the total gross distribution originally reported.  If you instead mail your tax return on paper, you'll just include the original code-3 Form 1099-R.

@dmertz 

Thanks!  So, should I ask Fidelity to correct the 1099R Forms and split as you suggest?  

No, you do not ask Fidelity to change the Form 1099-R they produced.  They won't do that.  Splitting it yourself is only to work around the limitation in TurboTax.

@dmertz 

Thanks so much for your help!