Mid-Air conversion reporting issue

[rm300]

I have a 1099R that covers (among other transactions) a disbursement from my qualified retirement account (traditional funds) at TSP to my Roth IRA at Vanguard.  TSP noted the taxable amount for this transaction properly in Box 2a, but used the rollover code (G) in box 7.   TurboTax apparently won't recognize the taxable portion from Box 2a and it treats the whole amount as a non-taxable rollover.  TSP won't issue a new 1099R to cover the conversion.  How can I handle this?

[dmertz]

Code G is the correct code, so there appears to be nothing wrong with the Form 1099-R that you received. Make sure that in the questions that follow the page where you enter the form details that you indicate that the money was rolled over to a Roth IRA (not to a Roth 401(k)) and the amount that you indicate as the amount of after-contributions you made is box 1 minus the amount in box 2a (or answer No if box 2a equals box 1).  If any basis in after-tax contributions was included in this distribution, that amount should be present in box 5 of the Form 1099-R provided by the TSP.

[rm300]

Thanks much for the response.  In trying to simplify my question I think I left too much out.

The 1099R covers both a straight rollover to my traditional IRA and a mid-air conversion to my Roth IRA.  All of the originating funds are pre-tax.  In the pages following the 1099R entry,  Turbotax seems to make me treat it all the same - either to a Roth IRA or not.  Whichever option I choose, it does not provide me with an opportunity to distinguish between the true rollover and the mid-air conversion.

[dmertz]

If the amount in box 2a of the Form 1099-R provided by the payer is zero, you apparently told the TSP that your rollover was to go entirely to a traditional IRA.  A proper direct rollover should make the payer be a specific IRA for your benefit, making it generally impermissible for funds to be diverted to a different IRA, but such diversions of funds do happen, as appears to be the case here.  Presumably the TSP initiated the transaction as you requested, so there would be no reason to expect them to change the Form 1099-R to include the taxable amount in box 2a if it's not already there.

Since there were two different destinations for the rollover, you must split the code G Form 1099-R into two, one for the portion rolled over to the traditional IRA and the other for the portion rolled over to the Roth IRA.  TurboTax is otherwise incapable of handling this common situation.  You prepare the split forms to sum to the same amounts as are in the respective boxes of the original Form 1099-R.  That's slightly problematic if the amount in box 2a of the original is zero since TurboTax will normally treat this as nontaxable even if you indicate that the rollover was to a Roth IRA.  In this case for the portion going to the Roth IRA you can put a zero in box 5 to indicate that there is not after-tax basis included in this and force TurboTax to treat it as taxable.  I doubt that you would need to provide any explanation to the IRS, but be prepared to do so if the IRS does question why you are reporting a portion of the distribution as taxable.

Of course if the original Form 1099-R correctly shows in box 2a the amount that went to the Roth IRA, just make sure that the box 2a amount shows up entirely on the split Form 1099-R that is for the portion that went to the Roth IRA.

[rm300]

Thanks very much.   The correct amount is in Box 2a.  By split, do you mean I could simply enter the data as if it were two separate forms and keep going?  That would solve my problem easily.  I was thinking I might have to create two "Substitute 1099Rs" and the associated Forms 4852s, which looks like it could be quite a process per the note on the 4852.

[dmertz · Accepted solution]

You could do it as substitute Forms 1099-R (Forms 4852) but that would prevent you from e-filing and I doubt that it's necessary to do so.  The IRS Automated Underreporter System mainly looks at totals and the totals in your case with splitting the Form 1099-R would match.