I received a distribution on a 1099-r distribution code 8. I am trying to rollover to an IRA but TurboTax does not provide the dropdown on what I am doing with the money

[dmertz · Accepted solution]

Code 8 indicates a distribution of an excess contribution from an employer plan.  This distribution is not eligible for rollover and the amount shown in box 2a is the amount that is taxable on your tax return.

If you deposited this money into a traditional IRA, you must enter it as a new regular traditional IRA contribution under Deductions & Credits.  If it's an excess contribution, you'll need to request a return of contribution by the due date of your tax return to avoid excess-contribution penalties.

[rconnor23]

Thanks for the quick reply.  I have a follow up to that question.  I am told that the funds are rollover eligible.  They were taken out of my checks in the 2017 year, but distributed in 2018.  Does that change how I enter them in 2017 taxes?

[dmertz]

Code 8 indicates a distribution of funds that are explicitly *not* eligible for rollover.

Apparently your company's plan failed to meet the Annual Deferral Percentage test and as a result a portion of your elective deferrals was not permitted despite being under the individual limit.  Since these contributions were not permitted, they are not eligible for rollover.

[bob12345678]

I requested an old employer retirement account to be closed out to roll over into my IRA. When I received the my 1099-R it was listed as code 8 distribution although they deposited it directly into my IRA. Am I at least able to write off the IRA contribution? I don't understand why I am being taxed on money that never ended in my pockets, but is rather caged away in my IRA.

[dmertz]

bob12345678, unless for some reason leaving the company made you ineligible to have contributed to the 401(k), contact the former employer to obtain a corrected Form 1099-R showing a regular distribution from the 401(k) (code 1, 2, 7 or G depending on the circumstances).  A distribution properly reported with code 8 was not permitted to be put into your IRA except as a new cash contribution independent of where the cash came from.

[SG4444]

Very helpful info. What is the best treatment for the funds received when the employer failed the Annual Deferral Percentage test? Thank you! 

[dmertz]

The funds that you receive as a result of a failure of the ADP test are taxable if they were elective deferrals to the traditional account, not taxable if they were contributions to the Roth account.  These funds are not eligible for rollover.