Should rollover reduce income?

[BillyBoy60]

rollover amount does not show on 1040

[DawnC]

The amount you rollover should be included in income but not taxable income.  The total amount will show on line 4a or 5a, but amounts that were rolled over within 60 days will not be included on lines 4b or 5b which show the taxable portion only.   Go back through your 1099-R questions and be sure to answer the follow-up questions regarding any rollovers after you enter all of your 1099-Rs.   If you did not roll over the entire distribution, you may be eligible to spread the tax over tax years 2020-2022 - see more below, but TurboTax is not yet updated to handle this situation, but will be soon! 

If you took a distribution from a retirement account due to corona virus related issues, you will be able to waive the penalty and spread the ordinary tax over tax years 2020-2022.  However, the forms have not been finalized by the IRS yet, so TurboTax has not been updated.  Once the forms are final (no date determined by IRS yet), you will see the options to apply the tax relief provisions on Form 8915-E.   The IRS does not start accepting returns until Feb 12th, so check back then to see what the status is.  

Those who qualify as individuals directly impacted by the pandemic will be able to withdraw up to $100k from their retirement accounts without facing the 10% early withdrawal penalty.  You qualify if:

• You, your spouse, or your dependent are diagnosed with COVID-19
• You experience adverse financial consequences because of being quarantined, furloughed, or laid off
• You had work hours reduced to COVID-19
• You’re unable to work due to childcare closure or hour reduction

The distribution would be taxed over 2020, 2021, and 2022. You’ll have that time to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions, and if you pay back the amount within that time, you’ll be able to claim a refund on those taxes.

As things change, TurboTax is continually updated and able to handle every situation that arises to ensure your taxes are done right, so you’ll receive your maximum refund.

[BillyBoy60]

Covid did not figure in any of this.

As 2020 began, I started taking monthly amounts from my IRA as RMD's.  In March, the IRS suspended RMD's, and since I didn't need the money, I stopped taking any more RMD.  In total, gross distributions were $15,600.  (Box 7 Distribution Code is 7.)

In addition, the IRS ruled that all or any part of RMD taken may be rolled over to another or the same IRA.  The 60 day rule is waived, but had to be done by Aug 31, 2020.

I rolled over $8,000 by putting it back into the same IRA on June 30.

See IR-2020-127, June 23, 2020.

When I filled out the 1099 R page for this, I put in the rollover amount of $8,000.  The $8,000 shows at the bottom of the page on line B2.

However, on the 1040, there is no mention of the $8,000 rollover, which should reduce the $15,600 income to $7,600.  ($15,600 - $8,000 = $7,600.)

That would lower my taxable income by $8,000.

I have gone over the 1099 input pages several times, and it does not help.

Can you help?

[DaveF1006]

it depends. Try these steps to see if the entry was made correctly.  If not, just repost your answer in this thread to do some additional troubleshooting. Assuming you are using Turbo Tax online, perform these steps.

1. Log into Turbo Tax

2. Go to tax tools>tools>view tax summary

3. Now look in you left side of your screen and select

4. Preview my 1040

5. Scroll down to Boxes 4a and 4b. There should be a difference. 4a is your gross distribution and 4b is your taxable amount of your distribution. In addition, underneath 4a should say rollover. There will not be an amount listed there but this informs the IRS that the difference is because of the rollover.

6. NOTE: If there are no amounts listed in 4a and 4b BUT listed in 5a and 5b, then this was incorrectly reported as a pension.  You will need to go back into your program and edit the 1099-R and check the box within the form stating that this is an IRA so that this distribution is handled correctly in the program.

[BillyBoy60]

DaveF responded:

Scroll down to Boxes 4a and 4b. There should be a difference. 4a is your gross distribution and 4b is your taxable amount of your distribution. In addition, underneath 4a should say rollover. There will not be an amount listed there but this informs the IRS that the difference is because of the rollover.

NOTE: If there are no amounts listed in 4a and 4b BUT listed in 5a and 5b, then this was incorrectly reported as a pension.  You will need to go back into your program and edit the 1099-R and check the box within the form stating that this is an IRA so that this distribution is handled correctly in the program.

Then I answered: 

There is nothing in line 4a.  The full $15,600 is shown in line 4b, the right hand column.

The word "Rollover" does not appear in line 4a or 4b.

There is nothing in 5a.  The full amount payments from 2 pensions is correctly shown on line 5b.

[BillyBoy60]

I went back to the 1099 input page and entered $15,600 in line 1, Gross Distribution.

In line 2a, on the 1099, $15,600 appeared, but on the input form, I entered $7,600.

In the actual 1099,  box 2b, Taxable amount not determined is checked.

After this, the 1040 still does not show $7,600 in line 4b.

[DaveF1006]

You will need to edit your 1099-R's to indicate what amount was a rollover. Let's see what we can do.

1. Go to federal>wages and income or income and expenses>all income
2. Retirement plans and Social Security>show more 
3. Ira (401K), pension plan Withdrawals(1099R) Review
4. Now you should reach a summary screen listing both 1099-R's. Here you will need to choose which 1099-R to review or if they both need reviewing, this is what you will do.
5. After selecting review on the 1099-R, scroll through the screens until you reach a screen that says, Tell us if you moved the money through a rollover or conversion
6. Here you will indicate that you I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days)
7. The next screen will say Did you rollover the gross amount of $15,600 (Box 1) to another retirement account? 
8. Here you will indicate you rolled over $8000. 
9. After this is done, please check your preview screen to see if this was recorded correctly.

[BillyBoy60]

The program seems unable to account for the rollover.  I first thought I had done something wrong in entering information.  But now I suspect there is a glitch in your program that prevents the proper amount to be put into line 4b of the 1040.

I have just manually done my simple tax return, and when the rollover is treated properly, per the 1040 instruction manual, The result is $1,000 less in tax owed.

Can you please fix this?

[SamS1]

You need to enter the correct info on the RMD screens.  If you took money out as a required minimum distribution then roll it back into the IRA under the Cares, in the RMD screens in TurboTax you should enter "None of this withdrawal was RMD".  That will take you to the "Tell us what you did with the Money".  There you can indicate you rolled all or some back into your IRA.

If you don't see the RMD screens, make sure and check your age in the My Info section to insure you are 70 1/2.  

[BillyBoy60]

SamS1:  Outstanding!!!!!  Thank you soooo much.  Yes, I had been indicating that it WAS rmd.  I thought there might be some little thing that I was not doing right.  Couldn't believe that Turbo would not have this figured out.   Thanks again, and your version saved me another $300 from doing it myself.

Thanks so much SamS1.