What if my 401k was rolled to both a traditional IRA and a Roth?

[shs66147]

I left my employer in 2017.  Rolled a pension to a traditional IRA.  Rolled a 401K (which included BOTH pre-tax and after-tax contributions) to Fidelity.   Fidelity put my after-tax amount into a ROTH account (so this went from after tax to after tax acct) and then the pre-tax amount went to a traditional Fidelity IRA.   The payor sent 1099Rs showing all went to a regular IRA, but then I received 5498 forms from Fidelity which separate out the Roth from the traditional IRA.  I'm concerned because the 1099R shows all going to IRA... But I did contribute part of my 401K post-tax, as I mentioned, so I would think that would not have a tax consequence anyway for a direct rollover.  But I'm so confused - help!   Do I need to have the 1099R corrected or is it ok as is?  I'm worried the IRS will get the 5498 for the Roth and not understand that this came from the post-tax portion of my 401K!

[dmertz · Accepted solution]

A Form 1099-R does not indicate what type of account a 401(k) distribution is rolled to.  If the Form 1099-R for the distribution from the 401(k) has code G in box 7, shows a zero in box 2a and the after-tax amount in box 5, the Form 1099-R is correct.

However, TurboTax does not gracefully handle split distributions.  Enter the pre-tax and after-tax rollovers separately by splitting the Form 1099-R into two.  (Another method is to enter the entire amount as having been rolled entirely to a Roth IRA and then indicate that a portion was recharacterized, leaving only the after-tax money in the Roth IRA, but 2017 is that last year that the recharacterization method will work due to the tax-law changes recently enacted that will result in changes to TurboTax for 2018.)

[shs66147]

Can you provide details on how to split the 1099-R in two?  Or explain the simplest way to do this.  (My head hurts 🙂      I will confirm that based on what you said above, the 1099-R correct.   So I guess the real problem lies where Turbotax asks if this was rolled to a Roth OR an Ira, right?   If I subtract out the Roth amount and enter it as a "separate" 1099-R, will the IRS question why they didn't receive two 1099-Rs for this?  Or will it look seamless when the return is actual complete?    Second Part:  If the 1099R is in fact correct, and the money went to appropriate IRA and Roth accounts, can I just answer No when TurboTax asks if any went to a Roth or is that going to be a problem?  THANK YOU!!!!

[dmertz]

For a code G Form 1099-R reporting a split distribution, the first Form 1099-R for the after-tax portion (the original Form 1099-R's box 5 amount) rolled over to the Roth IRA would have the box 5 amount in boxes 1 and 5 and a zero in box 2a.  In the follow-up, answer that the entire amount was deposited into a Roth IRA.  For the other Form 1099-R for the pre-tax amount rolled over to the traditional IRA, the Form 1099-R will have the remainder of the box 1 amount (original box 1 minus box 5) in box 1 and zeros in boxes 2a and 5.  In the follow-up, indicate than none of this money went to any kind of Roth account.  The boxes on the split Forms 1099-R should total to the amounts on the original Form 1099-R.  The rest of the entries on TurboTax's 1099-R forms should match the original.

Since a code G Form 1099-R should have no tax withholding shown in box 4, the details of the entered 1099-R forms are not included in your e-filing.  Only the result is (seamlessly) shown, on Form 1040 line 16 or Form 1040A line 12.  The IRS will be unaware that you entered this by splitting the original Form 1099-R.

If the Form 1099-R instead has code other than G, the answer will be different.

[shs66147]

Ok, I think I understand now.  Truly appreciate the help.

[DanO]

Thank you dmertz, great insight.

[shs66147]

dmertz :   I entered the information exactly as you described above.  The problem is is that Turbotax CHANGES my answers to the follow up questions!  I thought it was my error, but I've entered it 3 times now and the answers are changed.  First I broke out the pre-tax 401K amount and indicated in follow up questions it was not rolled to a Roth.   Then I entered the portion of the post-tax 401K that went to a Roth and in follow up questions I indicated it DID go to a Roth account.  When I go back in, it has changed the answer to NO, nothing went to a ROTH.  ???  Thoughts???

[dmertz]

The answers that appear to change are answers that are not saved as part of your tax file.  They are only used to guide TurboTax in determining what question to ask next.  As a result, the answer defaults to No each time the question is presented and you must answer the question accurately each time you see it.  It's the overall result that TurboTax saves.  Many people complain about this non-intuitive behavior of TurboTax.

[shs66147]

Ok so I don't need to worry that it appears I did not contribute pre-tax?  Do I get a tax credit for Roth contributions or is there really no direct effect to my return?

[dmertz]

The amount rolled over to the Roth IRA becomes conversion basis in your Roth IRAs.  This should appear on line 60 of 2017 TurboTax's IRA Information Worksheet.  If it appears there, TurboTax has treated your entries as indicating a rollover to a Roth IRA.  This will also carry to line 7 and be incorporated into the result on line 9 of the IRA Information Worksheet.

[shs66147]

I'm looking at my tax preview, and I don't even see an IRA Information Worksheet or a Schedule A for that matter (?) Sorry about all of these questions; my first time preparing taxes on my own.

[dmertz]

I'm not sure where you are looking.  To see the IRA Information Worksheet when using online TurboTax, you'll need to download and print the pdf of your tax return with all worksheets.

[shs66147]

I'm using online TurboTax.  I was in Tax Tools; Preview my 1040 (which doesn't appear to show worksheets, just the 1040)   I guess I can't see the PDF version until I pay - and I haven't yet paid because I want to make sure I can actually tackle this myself.  lol.   I guess I will check that Line 60 out after I pay.  Thanks so much for your patience and prompt responses!!

[dmertz]

Yes, that is all correct.

[shs66147]

You may not have heard the end from me; but I think I'm getting closer.  Again , thank you!!