Declaring IRA distribution to Roth AND to HSA

[ERA]

I executed a distribution from my Traditional IRA and rolled some of it into my Roth, and some of it into my HSA (as a 1-time QHFD). Where does TurboTax allow me to declare both of these transactions to ensure:

- I don't get taxed on the HSA portion, and

- I don't get hit with the 10% penalty on the Roth rollover portion?

[rjs]

After you enter the Form 1099-R for the distribution, continue through the questions in the interview. When it asks "What Did You Do With The Money" select "I moved the money to another retirement account," even though you didn't move all of it to the Roth IRA. It will then give you three choices. Select the third choice, "I did a combination of rolling over, converting, or cashing out the money." It will then ask you how much you rolled over or converted, with separate boxes to enter a rollover amount and a Roth conversion amount. Enter the amount that you converted to the Roth IRA in the appropriate box, then click Continue.

The next screen will ask whether your put the money into an HSA. Again, select "Yes, I put this money in an HSA," even though you didn't put it all in the HSA. It will then ask you how much you put in the HSA. Enter the amount and click Continue.

Be sure to continue going through all the questions, even after the summary screen that lists your 1099-R entries, until you get to the income summary screen.

[dmertz · Accepted solution]

The answer depends a bit on whether these distributions are reported on a single Form 1099-R or on two separate Forms 1099-R.  If they are reported on an single Form 1099-R, after you enter the Form 1099-R reporting the distribution from the traditional IRA TurboTax will ask what you did with the money.  You'll indicate that you moved the money to another retirement account, that did a combination of rolling over, converting and cashing out, that you converted part to Roth (explicitly entering the amount), then you'll indicate that you put the money into an HSA (explicitly entering the amount of your HSA funding distribution).  You'll also need to complete the HSA section to indicate your eligibility for the HSA contribution.

Form 1040 line 4a will show the entire amount of the distribution and line 4b will show only the taxable amount converted to Roth.  Line 4b will also include the notation "HFD."

If the distributions are reported on separate Forms 1099-R (because the Roth conversion was done in-house so that the custodian knows to use code 2 for that portion but still needs to use code 1 for the HFD) the instructions are essentially the same except that you'll likely indicate that the entire amount of the one reporting the Roth conversion was converted to Roth and you'll indicate that the entire amount of the one for the HFD was cashed out and that you put the money into the HSA.