Incorrect Rollover Calculation?

Forum|Forum|2 years ago
February 6, 2024
2 replies
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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).

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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.

dmertz

Level 15

I think I've confused you. I've been known to do that to the best of them...

Your split did not work. It gave me a tax liability...albeit a much smaller one. I think it's because I've got you confused as to what I have.

First distribution check was for 66k. 30K was taxable. That leaves 36K as non taxable.

Second distribution check was for 33k...all of which is non taxable. 33k + 36K is actually 69K...but the rounding of the numbers actually gets you to the 70K. So 70K goes into a Roth IRA and the 30K goes to a traditional IRA.

As I mentioned, the only way to get the zero tax liability to show was as I mentioned:

The first one was for the taxable amount of $30,000. I put that same amount in box 2a, Total Distribution, Box 5 was 0, Code G and no Roth IRA or Roth 401K. The second was for the balance of the $100,000 on the 1099...$70,000. Nothing in box 2a, total distribution, and I changed Box 5 to $70,000. No Roth 401K, and yes to Roth IRA. That gave me the desired tax outcome. However, the only entry on the 1040 is 5a...the taxable amount for this 1099 on 5b is 0. There are no entries on 4a or 4b...which I believe to be correct because these funds did not come from a Roth. I am guessing the code used in box 7 would determine that and code G doesn't do it.

Again, this 1099 is for a 401K that both pretax and post tax contributions. The payer could have been much clearer in my opinion, but this is what I have to work with.

Thank you again dmertz for all you are doing for me.

You do have a tax liability resulting from these rollovers. The rollover of the $66,000 is not tax-free. Anything you do to try to eliminate the tax liability is erroneous. The correct result is $30,000 on line 5b of Form 1099-R.