Why is my 401(k) roll-over counted as a distribution?

[Brice]

When I add my 1099-R, TT adjusts my total (as well as taxable) income by 150% of the roll-over amount. 

My 1099-R is showing a "G" in Box 7 and boxes 1 and 2a are identical values; i.e. the roll-over should be taxable but at my regular tax rate and not penalized by 50%. The roll-over was from an employer-sponsored 401(k) to a Roth IRA that I opened myself.

[VolvoGirl]

I'll page someone who knows @dmertz

[macuser_22]

Did you enter the 1099-R in the IRA contribution section by mistake?
Where do you see a 50% penalty?

Enter a 1099-R  here:

The follow-up questions will ask if it was rolled to a 401(k) Roth - say no, then if it was rolled to a Roth IRA - say yes.  The box 2a amount should be on line 16b on the 1040 for (12b on a 1040A).

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type:  Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE:  When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases.  You can always return as shown above.]

[Brice]

Thank you @macuser_22! I added it in the 1099-R/income section, so not in the contribution section. The 50% penalty shows up in the My Account>Tools>View Tax Summary where the total and taxable income are increased by 150% of the roll-over amount.

I'll try your other suggested steps and report back.

[Brice]

@macuser_22: No joy on the other steps either - I had it entered where you suggest, and no additional interview questions came up...

[macuser_22]

It will show as income on the summary screen which shows gross income, not taxable income.
 
The income will be reported on line 16a on the 1040 form with the word “ROLLOVER” next to it if it was a rollover.
The taxable amount will go on line 16b.  In the case of a rollover, that amount will be zero. For a Roth conversion 16b should be the box 2a amount

Lines 12a/b if 1040A form.

If you have more than one 1099-R then the summary screen will show the box 1 total of all forms.

[macuser_22]

You said that you opened it yourself - did you first roll the 401(k) to a Traditional IRA and then convert that to a Roth?

If so then the 1099-R box 1 for the rollover to a Traditional IRA would be on line 16a with the word ROLLOVER and the 1099-R for the Traditional IRA to Roth conversion on line 15b..

The summary screen would show the box 1 totals from both 1099-R forms.

[Brice]

Alright - I had to set up an excel spreadsheet but I found what was causing the difference (thank you for @macuser_22 for pointing me in the right direction!):

When I "Preview My 1040" in the My Account>Tools>View Tax Summary, the "ROLLOVER" properly shows up on line 16b as suggested by @macuser_22. I have a schedule E (rental income), which shows a value of -10k on line 17.

When I then remove the 1099-R completely from TT, the "ROLLOVER" and value on line 16b disappear, as expected. However, Schedule E shows a value of -18k.

So adding the rollover together with the change in Schedule E accounts for the difference in total income as well as adjusted gross income.

Nonetheless, it is still unclear to me how Schedule E would change based on the addition of a Rollover...

[macuser_22]

A 1099-R and a schedule E have no relationship whatsoever.   Totally different things.

[Brice]

It turns out that if your total income is between 100k and 150k the portion of losses reported on Schedule E changes on a sliding scale from 100% at 100k and 0% at 150k. Adding the rollover caused the total income to increase such that it resulted in a lower deduction amount from Schedule E, which made it appear like the rollover was being taxed at a higher rate.

In the particular case the numbers worked out just such that the change in deduction from schedule E was ~50% of the roll-over, thus making it look like it was taxed like a distribution...

[macuser_22]

Of course your AGI can cause phase outs of deductions, but there is not direct relationship.  Any additional income from whatever source would have the same result.   It can also affect your Alternative Minimum Tax and itemized deduction phase outs.