Rollover of IRA Distribution being shown as taxable on 1040 when it is not

[MinhT1]

Enter your form 1099-R by following these steps:

1. In TurboTax, open your tax return
2. Click on Federal in the left-hand column, then on Wages & Income on top of the screen
3. Scroll down to All Income, locate the section Retirement Plans and Social Security and click on Show more
4. Click Start next to IRAs, 401(k), Pension Plan Withdrawals (1099-R).

After entering your form 1099-R, click Continue until you reach the screen Tell us if you moved the money through a rollover or conversion. Check the radio button which corresponds to your situation then click Continue and follow the interview.

[GaryP9]

On the TurboTax form 1099-R I filled in my gross distribution in box 1 and entered zero as the taxable amount in box 2a. I then followed the interview and checked all the correct buttons for a full rollover, but when I run the check entries at the end of TurboTax, it points out that the taxable amount cannot be zero. But when I change the zero amount in box 2a to match the gross distribution in box 1, it has me paying taxes on the full amount of the RMD even though I rolled it over. Is this a bug?

[MarilynG1]

Only enter in Box 2a what is shown on your Form 1099-R.  If it is blank, leave it blank.  TurboTax will ask you to verify that it was blank.  You may also have Code G or H in Box 7 of your 1099-R to indicate a Rollover. 

Continue through the 1099-R interview about your distribution and you will reach a screen where you can indicate a 'rollover' (screenshot). 

Click this link for more detailed info on Form 1099-R.

[GaryP9]

That doesn't solve my issue. My actual Vanguard-produced 1099-R form has 7 in the Distribution code and the amount in box 2 (taxable amt.) is the same as the gross amount in box 1. However, I did rollover all of the distribution back to the same IRA account before the CARES Act deadline. I noticed in the IRS instructions for 1040, it says to put zero in box 2a if you rolled over the entire amount in 2020. But when I do that Turbotax doesnt like it and says it cannot be zero with a 7 in the distribution code. So I am in a catch 22.

[fanfare]

your situation is resolved in the follow-up questions.

after entering the 1099-R, hit CONTINUE

[VolvoGirl]

After you enter the 1099R say it was not an RMD and then that you rolled it over (even if back into the same account).  Was any withholding taken out?  If it was then did you replace the withholding with your own money?  Otherwise the withholding will be a taxable distribution itself.

[Critter-3]

Look at the actual form 1040  and not the summary screen which shows the total distribution and not just the taxable portion.  If you entered the 1099-R and answered the following screens  to report the amount rolled then it should be correct. 

How do I preview my TurboTax Online return before filing?

You can view your entire return or just your 1040 form before you e-file:

1. Open or continue your return.
2. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
3. With the Tax Tools menu open, you can then:
• Preview your entire return: Select Print Center and then Print, Save, or Preview This Year's Return (you may be asked to register or pay first).
• View only your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu.

[GaryP9]

VolvoGirl's suggestion of checking the radio button that says it is NOT an RMD, and continuing the step-by-step worked. In fact that step actually automatically inserted the word "ROLLOVER" on form 1040, line 4b, which is what the 1040 instructions say to do in this case.

Thank you for your help.

[smreed48]

in reply to:

 MarilynG1

Employee Tax Expert,

Where does the page you posted come in.  I'm running Premier and though it askes similar questions, it is not laid out like your page.  

How to answer the RMD question is not intuitive.  I think TT should have provided a LOT of guidance/help in dealing with this item.  Inherited IRAs are supposed to get same treatment as regular IRAs but TT doesn't ask if you rolled over/redeposited the amount.  I went back and changed in TT "no RMD required" for the regular IRAs and Inherited IRAs, it says regular IRAs distributions won't be taxed and if you go to the taxable summary it shows them as not taxed.  However, Inherited IRAs (supposed to get same treatment as regular IRAs) but TT shows it as taxed in the taxable summary.   Further, on the 1040-SR, it carries the the returned Inherited IRA distribution down to the AGI.

I don't feel comfortable with TT at the moment.

[BarryK123]

This is the problem I'm having with a redeposited RMD from at Inherited IRA.

[LinaJ2020]

Do not forget to fill out the Form 8606 Nondeductible IRAs section in the program. If you have made any nondeductible contributions to your traditional IRA, you may not pay taxes on the entire conversion amount.  Those nondeductible amounts are so-called the basis.  To see how this amount is calculated, I suggest you review your Form 8606 Nondeductible IRAs. If you ever made nondeductible contributions, it will allow you to take withdrawals tax-free or partially taxable.  

To quickly access to the 1099-R / 8606 section, here are the steps:

In TTO, 

Sign in to your account, follow prompts

• From the upper right menu, select Search and type in 1099r and Enter
• Select the Jump to 1099r
• On-screen, Let's import your tax info, select I'll type it in myself
• Follow prompts until you see the attached screens.  

For more information about the Form 8606, click here Nondeductible Contribution

@cpacwk47

@BarryK123, please see my answer above.  Here is more information about an inherited IRA:

Per IRS, if you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you can't combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions.  Hope it helps.

[dmertz]

"I noticed in the IRS instructions for 1040, it says to put zero in box 2a if you rolled over the entire amount in 2020."

Nowhere do the IRS instructions for either Form 1040 or Form 1099-R say that.

A code 7 Form 1099-R for a distribution from a traditional IRA must always have the same amount in box 2a as is in box 1 and the Form 1099-R must be entered exactly as received.  Since the entire amount was rolled over, you must indicate that none of the distribution was RMD (no distribution in 2020 was an RMD because RMDs for 2020 were suspended), indicate that you moved the money to another  retirement account or back to the same account, then indicate the amount that you rolled over.  TurboTax will include the entire gross amount on Form 1040 line 4a but will exclude from line 4b the amount rolled over.  TurboTax will include the word ROLLOVER next to the line.  If you don't get this result, delete and reenter the form 1099-R, making sure to indicate the none of the distribution was RMD.

[VolvoGirl]

@GaryP9   You mean in the IRS 1040 instructions on page 25?  https://www.irs.gov/pub/irs-pdf/i1040gi.pdf 

Bottom of page 25 it says to put 0 on line 4b (not on your 1099R box 2a).  

[GaryP9]

Yes.  That is correct. Box 2a on Form 1099R in TT needs to agree with whatever is on the Form 1099 from your IRA custodian.