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Why is a direct 401k rollover to an IRA account considered INCOME? I did not have access to the funds during the year.

I do not understand why a direct rollover from one retirement account to another is considered income, even though it is not taxable income. I did not receive the funds as they were handled by the funds administrators.

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Employee Tax Expert

Why is a direct 401k rollover to an IRA account considered INCOME? I did not have access to the funds during the year.

The rollover is included in your total income, but it is not considered taxable income, for tax purposes.

The rollover from an IRA would be shown in Box 16a (as nontaxable) Form 1040. If the entire amount is rolled over (most often with Code "G" in Box 7 of the 1099-R), the line 16b remains blank (it means zero taxable amount) and the rollover would not be included in taxable income. (Form 1040A line 12a and b).

If you'd like, you may preview Form 1040, before paying for the program to verify the nontaxable treatment. 

  1. From My account drop down, select Tools (you must be logged into your tax return)
  2. Select View Tax Summary
  3. Select Preview my 1040

1 Reply
Employee Tax Expert

Why is a direct 401k rollover to an IRA account considered INCOME? I did not have access to the funds during the year.

The rollover is included in your total income, but it is not considered taxable income, for tax purposes.

The rollover from an IRA would be shown in Box 16a (as nontaxable) Form 1040. If the entire amount is rolled over (most often with Code "G" in Box 7 of the 1099-R), the line 16b remains blank (it means zero taxable amount) and the rollover would not be included in taxable income. (Form 1040A line 12a and b).

If you'd like, you may preview Form 1040, before paying for the program to verify the nontaxable treatment. 

  1. From My account drop down, select Tools (you must be logged into your tax return)
  2. Select View Tax Summary
  3. Select Preview my 1040