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pfparchitect
New Member

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.

1 Best answer

Accepted Solutions
MargaretL
Level 9

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

View solution in original post

5 Replies
MargaretL
Level 9

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

View solution in original post

Celtic1001
New Member

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

This does not seem correct to me, that a complete rollover to another 401K would be counted as income. I did not have access to the funds and never took possession of the funds at any time. Why does this affect my adjusted gross income. 

macuser_22
Level 15

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


@Celtic1001 wrote:

This does not seem correct to me, that a complete rollover to another 401K would be counted as income. I did not have access to the funds and never took possession of the funds at any time. Why does this affect my adjusted gross income. 


A 401(k) rollover is reported on the 1040 form line 5a as income, but not taxable income as indicated by a zero on line 5b with the word ROLLOVER next to it.  It is NOT included in AGI and does not affect the tax.

 

(It it was not income then the IRS would not require that it be reported on an "income" tax return.)

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Cynthiad66
Expert Alumni

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

The IRS requires that the rollover is shown on the return.  A direct rollover is required to be shown but is not taxable.

 

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).

SweetieJean
Level 15

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

If you are looking at the TT Income Summary, that only shows the gross figures, and is just FYI.

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