Incorrect Rollover Calculation?

Forum|Forum|2 years ago
February 6, 2024
2 replies
0 views

I have a 1099-R that has the following information:

Box 1: $100,000

Box 2: $30,000

Box 2b: Total Distribution Only is checked

Box 5: $36,000

Box 7: G

IRA/SEP/SIMPLE is NOT checked.

Box 16 (State DIstribution): $30,000

All funds were rolled over. $30,000 went to a Traditional IRA and $70,000 went to a Traditional Roth since that amount was not taxable.

When I enter this 1099 into TurboTax (deluxe) I plug in the numbers and answer NO to this money did not roll over to designated Roth 401K or 403B account.

I answered YES this money was rolled over to a Roth IRA account. The next screen auto-populates to the $36,000 I entered into Box 5.

This generates a HUGE tax liability that I do not believe exists. (Appx $19,000 Federal) If I answer the second question NO, there is no tax consequence at all...which I believe to be correct.

Am I doing something wrong, or am I really up a creek with the way this was rolled over?

DavidD66

Level 15

No, you're not doing anything wrong. The program just doesn't like the distribution with two types of rollovers reported on the same 1099-R. The distributions should have been reported separately, one using code G for the traditional IRA rollover, and with code H for the Designated Roth Contribution rollover to a Roth IRA. But since that isn't the case, I would do exactly what you did - answer No to the question of was the money rolled over to a Roth IRA. The result is correct - a tax free direct rollover of your 401(k).

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

Bill_G

Level 2

I understand your response to this question, but have a related issue. I did several direct rollovers to consolidate IRA accounts. They were total distributions (distribution code G) and the program handled them correctly as non taxable. What it did incorrectly, is counted them in my total income for the year. Since they were total distributions direct rollovers, the money is only transferred between accounts and should not be included as income.

VolvoGirl

Level 15

If you are looking at a summary screen or review screen those show the full amount as income and lump a lot of stuff together. You need to check the actual 1040 form boxes 4b or 5b and make sure it's right.

dmertz

Level 15

Code H has nothing to do with this. There was no distribution from a designated Roth account in the 401(k).

The amounts that you indicated for boxes 1, 2a and 5 of this Form 1099-R indicate that it is reporting that $30,000 + $36,000 = $66,000 went to the Roth IRA and the remaining $34,000 went to the traditional IRA. If you somehow caused $70,000 to go to the Roth IRA and only $30,000 to go to the traditional IRA, the Form 1099-R either needs to be corrected by the payer or you need to submit substitute Forms 1099-R (Forms 4852).

mbroncofanAuthor

Level 2

All good information, but dmertz, I'm not following your arithmetic. And I'm sure it's because I'm not understanding the way the numbers are reported. I see this as a $100,000 total distribution. Of which, $30,000 is taxable and $70,000 has already had the taxes paid...so $70,000 goes to a traditional Roth. (our new financial advisor directed that.) The $30,000 goes to a traditional IRA. I really don't see where the $36,000 even comes into play. IRS Instructions state:

The entry in box 5 may include any of the following:
(a) designated Roth contributions or contributions actually
made on behalf of the employee over the years under the
plan that were required to be included in the income of the
employee when contributed (after-tax contributions), (b)
contributions made by the employer but considered to have
been contributed by the employee under section 72(f),

If I read that correctly, those contributions have been paid by us (after tax payroll deduction) or the employer (included on W-2's) and have been taxed...so therefore, are part of the $70,000 non-taxable portion of the rollover. In fact, when the company sent the check to our new financial advisor (direct rollover) , they sent one check and paperwork designating exactly how much was what...like the 1099 states.

Looking at your numbers above, why would the $30,000 go to the Roth? That is taxable and would generate a large tax bill. So therefore, the $30,000 went to the traditional IRA. Everything else went to the Roth because it was not taxable. Again, I really don't see what the $36,000 has to do with this.

Any help is greatly appreciated.

mbroncofanAuthor

Level 2

Given that these were from the same account, it seems that these must be distributions from the traditional account in the 401(k) , not from a designated Roth account.

The combination of the details of the Form 1099-R and the transaction details seem to agree that the check for $66,000 was to be deposited into the Roth IRA as a Roth conversion (technically a taxable rollover) and the check for $33,000 was to be deposited into the traditional IRA as an ordinary rollover. From your original question It seems that this is where the checks were properly deposited.

To report these rollovers in TurboTax, you must split the Form 1099-R into two. The first one will have $66,000 in box 1, $30,000 in box 2a, $36,000 in box 5 and code G in box 7 which you will indicate to TurboTax was not rolled over to a Roth 401(k) but was rolled over to an Roth IRA. The second one will have $33,000 in box 1, $0 in box 2, $0 in box 5 and code G in box 7 which you will indicate to TurboTax was rolled over to neither a Roth 401(k) nor a Roth IRA. The sum of the corresponding boxes on the split forms must be the same as the dollar amounts in the corresponding boxes on the form provided by the payer. On Form 1040 TurboTax will include $99,000 on line 5a and $30,000 on line 5b with a "ROLLOVER" notation next to line 5b.

I think you are really close! I actually spoke with the payer online and my new FA both and this is what they both told me...they are in agreement.

Looking at the details because it gives the most information...the box 5 ($36,000) entry in the 1099 is the amount of contributions we personally made into the after tax 401K. (It's technically not a roth, but kind of acts like one) The gross distribution of details (1) of $66,000 minus the employee contribution of $36,000 comes up with the taxable amount of $30,000 in box 2a of the 1099. I get all that. The details (2) shows a distribution of $33,000 and since none of it shows a taxable amount on the details...and no amount of that is included in box 2a of the 1099, the payer told me the entire $33,000 is non taxable.

Therefore, I believe (as does my new FA) that the $30,000 of taxable rollover into a traditional IRA...and the balance of $70,000 into a Traditional Roth IRA is correct. The difference between that $70,000 and the $36,000 employee contribution is the amount paid by the employer and included on a W-2. My next task then is to follow your instructions with splitting the 1099 to get the program to recognize it correctly.

Do you agree? And won't splitting the 1099 throw a flag to the IRS or won't they even know?

Thank you for all your help...it's been amazing!