Traditional 401k to Roth IRA Rollover

[mawad]

I rolled over a traditional 401k (pre-tax) from a former employer to a Roth IRA (post-tax). This was done as a "direct rollover" (Charles Schwab to Fidelity). As I understand it, I will need to pay income taxes on the rolled over amount because it’s being moved from a pre-tax account to a post-tax account. A 1099-R form was issued to me from the payer. When I file my taxes with TurboTax online, enter the 1099-R form, and answer all the relevant questions, I don't see any additional taxes being withheld. I suspect it has something to do with Box 2a being $0.00. I am almost positive that the 401k funds are all pre-tax dollars, and thus taxable when being rolled over to a Roth IRA. Could the 1099-R form be incorrect?

1099-R Form Details:

• Box 1 (Gross distribution): ~$25k
• Box 2a (Taxable amount): $0.00
• Box 2b:
  • Taxable amount not determined - UNCHECKED
  • Total distribution - UNCHECKED
• Box 7:
  • Distribution code(s): G
  • IRA/SEP/SIMPLE - UNCHECKED

[MinhT1]

The fact that you did a rollover of the amount to a Roth IRA has to be indicated in the TurboTax interview after you enter your form 1099-R.

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
3. Continue and 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).
5. Enter your form 1099-R and follow the interview
6. When you arrive to the page Did you move the money to a Roth IRA?, click on the radio button Yes, this money was rolled over to a Roth IRA and Click Continue

[SteamTrain]

@dmertz 

I think there was a discussion about this exact subject the other day (I can't find)....copy paste some info from there if you can find it?

[dmertz · Accepted solution]

$0 in box 2a is incorrect for a rollover to a Roth IRA from a traditional 401(k) account unless box 5a shows that the distribution included an amount of after-tax basis in the 401(k) equal to the amount in box 1, which is unlikely.  I'll assume that this rollover consisted entirely of pre-tax funds and that there is no nonzero amount shown in box 5.

If your request to Charles Schwab was to make the distribution payable directly to your Roth IRA, they've prepared the Form 1099-R incorrectly and they should be obligated to correct it.  If your request did not specify that the rollover was to a Roth IRA, then they were reasonable to assume that the rollover was to a traditional IRA in agreement with the Form 1099-R that they issued and would be unlikely to change it.

Even without getting Charles Schwab to change the form, you get get TurboTax to report the rollover as taxable by entering a zero in box 5 and indicating in the follow-up questions that the distribution was rolled over to a Roth IRA.  However, without a corrected Form 1099-R showing the true taxable amount in box 2a, the IRS might conclude that you over-reported your taxable income and mistakenly issue you a tax refund.  You could file a substitute Form 1099-R (Form 4852) showing the correct amount in box 2a, but that would preclude you from e-filing.

[mawad]

@dmertz I contacted Charles Schwab and they confirmed that the rollover was to a traditional IRA and the Form 1099-R was prepared as such. As expected, they would not agree to change it. Unfortunately, the funds were already deposited into a Roth IRA account, so I went ahead and filed a substitute Form 1099-R (Form 4852) showing the correct amount in box 2a. Thankfully, I was still able to e-file with TurboTax Deluxe Online and my federal return was accepted by the IRS yesterday. Thanks for the help!

[dmertz]

I guess TurboTax and the IRS now support e-filing Form 4852.  Thanks for the update.