My 1099-R for my Roth IRA distribution shows the code " T " in box 7. What gives?

[agent86]

What version of Turbotax are you using? I have Premier. I called the support line today and went through the whole process with him line by line and it was agreed something is not working right, at least in my version. He is escalating this to the tech group and will report back to me in a few days time. I'll post what I find out.  Also, he said that changing the 1099-R (by forcing a zero into box 2a) is probably a bad idea as the IRS frowns on changing official documents. You could go to jail...but on the other hand you can die of frustration too.

[macuser_22]

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@agent86 wrote:

What version of Turbotax are you using? I have Premier. I called the support line today and went through the whole process with him line by line and it was agreed something is not working right, at least in my version. He is escalating this to the tech group and will report back to me in a few days time. I'll post what I find out.  Also, he said that changing the 1099-R (by forcing a zero into box 2a) is probably a bad idea as the IRS frowns on changing official documents. You could go to jail...but on the other hand you can die of frustration too.

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The 1099-R interview should be the same in all versions, I m using the CD/Download version (I have not tested this in the online versions).

[macuser_22]

I enter the same thing into the online version and sure enough it shows as taxable.  I will report this as a bug.

[dbookbinder]

Have you gotten a response back from Intuit? I'm having the same issue with the business version of Turbotax, but only for the Massachusetts return. I'll try to get Fidelity to correct the 1099-R, but in the meantime it would helpful to know if there's an immediate solution. I checked back in 2019, and Turbotax for Massachusetts did the same thing -- I just didn't notice because the distribution I took then was smaller.

Thanks!

David

[agent86]

No, Turbotax never replied even though they promised they would. Pretty aggravating. I plan to call them again this week. Fidelity won't change your 1099-R (been there done that). They will tell you they can't because they are not tax advisors. I may use the, "best answer," from the Turbotax forum which means inserting a zero in box 2. I saved my chat session with support and a copy of the, "best answer," in case I get hassled by the IRS. At least I'll have something to show I tried. In fact, after carefully reading the IRS rules, the tax should be zero. I really feel like Turbotax has a bug in the software and has left a lot of people hanging.

[dbookbinder]

Thanks for the quick reply. Just verified that indeed Fidelity will never change the "T" to a "Q" even if I prove to them that the account is more than five years old, though it would be a lot better if Fidelity did change it, because I have to file an amended return for 2019. Their advice was to ask TurboTax how to get around this problem or to use a different tax program.

For Massachusetts, even putting 0 in the taxable box doesn't fix it. I have to change the code to "Q."

This is a pretty serious bug for the most popular tax program in the U.S. 

[dbookbinder]

It just occurred to me that a workaround for this problem would be to file a paper return. Do taxes using the Q code in Box 7, print out the return, then switch to the T code and print the 1099-R and substitute that for the "doctored" 10-99-R. Except that this will dramatically delay any tax return processing or refunds because of IRS understaffing, I can't think of a downside.

[macuser_22]

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@dbookbinder wrote:

It just occurred to me that a workaround for this problem would be to file a paper return. Do taxes using the Q code in Box 7, print out the return, then switch to the T code and print the 1099-R and substitute that for the "doctored" 10-99-R. Except that this will dramatically delay any tax return processing or refunds because of IRS understaffing, I can't think of a downside.

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Unless there is box 4 withholding, NOTHING on the 1099-R is sent to the IRS on an e-filed return, only the 1040 line 4a and 4b.    Just like a paper return, you only include (attach) 1099's that have withholding.   The IRS would never know the actual code on the 1099-R.  They only look at the code on the 1099-R copy submitted to them by the financial institution that issued the 1099-R and that your 1040 form is consistent with that.

If there is box 4 withholding then they want your copy, just like a W-2, so they can verity the withholding.

[agent86]

Thanks for the insight. Accordingly, I'll be rightfully forcing a zero into box 2A. TT SHOULD FIX THIS PROBLEM. Lots of people are probably paying too much because the software defaults to 100% taxable if there is a "T" in box 7 regardless of how you answer the follow-up questions.

[macuser_22]

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@agent86 wrote:

Thanks for the insight. Accordingly, I'll be rightfully forcing a zero into box 2A. TT SHOULD FIX THIS PROBLEM. Lots of people are probably paying too much because the software defaults to 100% taxable if there is a "T" in box 7 regardless of how you answer the follow-up questions.

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I reported it to TurboTax but have not received a response.  The desktop version works fine, it is only the online version that has the problem.

[dbookbinder]

The desktop version gets the Federal return right, but not the state return, at least in Massachusetts. I spent a pointless hour with TurboTax support last night. This problem is not new -- I see that it did the same thing two years ago, but I didn't notice because I took a smaller distribution. Apparently, they are not inclined to fix it. 

[dbookbinder]

Thanks, that's really good to know! Then "Q" it is, for me. Why an hour with TurboTax support couldn't give me that information about what gets sent to the IRS and the state is beyond me.

[kevinesler]

Seeing exactly the same problem for my 2022 return.

[Semievolved]

This does not work. I tried everything, indicating "0" as the taxable amount (and unchecking "Taxable Amount Not Determined") but as long as "T" was indicated as the type of distribution, the whole amount was taxed by TurboTax premier. 

The fault lies with Fidelity and other financial institutions who insist on issuing the T code even though they are in many cases in possession of all the information that indicates the distribution is qualified (Q code). I can understand their wish to limit their liability by wrongly assigning a Q to a Roth IRA that should be a T but in mine, and many others' cases, Fidelity has on file that I started the Roth (with them!!!) many years ago and that I am well over 59.5. I is inexcusable that Fidelity knowingly issues a distribution code that is incorrect and throws it in the taxpayer's lap to figure out what to do.

I spoke to a helpful IRS rep about the issue. Since there is no way I have found in TurboTax Premier to untax this distribution without changing the code from T to Q, I asked if that would create a problem. She said that when/if my return is reviewed, the discrepancy with what I submitted vs what Fidelity submitted could raise a flag. Her advice was to manually change the code to Q and to have complete notes about the incorrect code from Fidelity, records of when the Roth was established, and also note my conversation with her including her agent number so that I could defend my changing the code to Q. She said that should suffice.

I wonder how many people submit their returns through TurboTax or other software and don't notice that their Roth was taxed? Seems like a class-action lawsuit waiting to happen and I would love to sign on to it if it does.

[Semievolved]

My version which is a TurboTax Permier disc purchased at Costco has exactly the same problems listed above. Apparently, TurboTax has not bothered to alter the software to allow manual submittal of "Zero" as the taxable amount. As long as the distribution code is listed as "T", the entire distribution is considered taxable.