Word "Rollover" does not appear next to Form 1040 Line 5b in TurboTax

[ssel]

I did a rollover of a 401(k) account (a nontaxable conversion of after-tax funds to a Roth). This was reported on a 1099-R with code G indicating a rollover. TurboTax Deluxe correctly reports the rollover amount on line 5a and zero on line 5b.

The IRS's Form 1040 instructions state that for rollovers, the word "Rollover" should appear next to line 5b.

A number of years ago this worked correctly in TurboTax.  For a few years now I have encountered this problem, but I could always fix it by overriding the "pension write-in text" field on TurboTax's Form 1040 Worksheet.  This year, however, the field cannot be overridden.  Any workarounds?

[dmertz · Accepted solution]

Wow, very observant of you.  I just did some testing of previous versions of TurboTax and this bug is been in TurboTax at least as far back as 2013, probably farther.  TurboTax is incorrectly omitting the ROLLOVER indication on a rollover of a qualified retirement plan to a Roth IRA (or an In-plan Roth Rollover)  if the taxable amount is $0.

The only workaround I've been able to come up with is to use the CD/download version of TurboTax, switch to forms mode, open the code G 1099-R form, unmark box B5 that is presently indicating that the entire distribution was rolled over and instead fill in line B6 with the gross amount of the distribution.  However, this messes up TurboTax's tracking of your 2020 conversion contributions to your Roth IRAs and messes of TurboTax's 1099-R Summary, which could have negative effects elsewhere on your tax return if you also took Roth IRA distributions in 2020.

My only other suggestion would be to print and mail your tax return after hand-writing in the ROLLOVER indication.  Printing and mailing would also be required if you were able to do an override to correct this (but, as you found, you can't).  I really don't like the idea of printing and mailing the tax return, though, because you are relying on the accuracy of the data transcriber for your IRS-recorded tax return to be correct.

I suspect that the best approach might be to ignore the error.  You and the IRS will be getting a Form 5498 showing the rollover contribution to the Roth IRA and the code G on the Form 1099-R itself shows that there was indeed a rollover.

@macuser_22 might be able to pass this bug report along to the moderators.  I suspect that since the bug has been around for so long and hasn't seemed to have caused any problems with the IRS for the affected taxpayers, it might not get much attention.

Note that the problem also seems to happen with an indirect rollover from a qualified retirement plan to a Roth IRA (code 1 or 7) when the taxable amount is $0, but I've only checked some of those variations.

[ssel]

Thank you for that quick, detailed, and thoughtful response.  I'd be grateful for a bug report being filed, so perhaps next year things will work better.

[macuser_22]

Reported.

[ssel]

Hey, starting from your suggestions, I think I may have found a workaround.  This was an in-plan Roth rollover (IRR), so no IRA was involved and B5 was not checked.  I subtracted one from B8 ("previously taxed contributions") so it no longer matches the rollover amount.  The word "Rollover" is now printed on line 5, and the numbers on that line stayed the same as before (so they're still correct).

I don't imagine TurboTax is tracking anything about my 401(k)s, certainly not anything I care about, so this workaround seems harmless.  Let me know if I overlooked something, and thanks again.

[dmertz]

I agree.  I didn't realize that this was an IRR, otherwise I would have suggested something along the lines of what you found.  Because it's an IRR, there is no basis tracking in TurboTax to get messed up by any workaround.

[Katie_B]

@dmertz Thank you for your help in this, I am taking a look. As I submit this to the team, would you be able to send me a diag file for testing? You can post the token number here or email our community team. Thank you!

[dmertz]

@Katie_B Token 709893.  This file has only one real entry, a code G Form 1099-R reporting an In-plan Roth Rollover that is completely nontaxable due to the funds being all after-tax funds in the 401(k).  Observe that the ROLLOVER indication is missing from Form 1040 line 5b.  Note that if the marking of box B7 of TurboTax's 1099-R form is removed (implying that the rollover was to a traditional IRA or to a traditional account in another qualified retirement plan) the ROLLOVER indication appears.  Nothing in the IRS instructions for line 5b says that the ROLLOVER indication is to be omitted regardless of the destination account type.

Perhaps the developers were confused by inconsistent terminology usage.  TurboTax refers to movement of funds from a traditional account in a qualified retirement plan to a Roth account as a conversion even though the term "conversion" in the tax code applies exclusively to movement of funds from a traditional IRA to a Roth IRA.  Roth conversions reported on lines 4a and 4b are not to get the ROLLOVER indication.  The IRS really made things inconsistent between what is to be done on lines 4a and 4b and what is to be done on lines 5a and 5b.  Taken as a whole, the IRS instructions for all of these lines are pretty incomprehensible, making it difficult to design software to correctly handle all of the possibilities.  However, they are pretty clear if you just follow them through for a particular example like this one, and for any kind of rollover from a qualified retirement plan the word ROLLOVER is to be present.  The type of destination account doesn't matter.  Any movement of funds from a qualified retirement plan to any type of qualified retirement account is a rollover.

This bug also affects the reporting if the destination account is a Roth IRA instead of the designated Roth account in the plan and for indirect rollovers with code 1, 2 or 7 (to a Roth IRA,  indirect IRRs are generally not done).

[Katie_B]

Thank you so much for you prompt response and this additional helpful information. It is much appreciated and we are looking into this. Happy Tuesday!

[hullian]

I did a non-direct IRA rollover, taking a required minimum distribution last year, and then putting it back in the account prior to the August deadline. Usually, If the 1099-R has the "rollover" code on it (as happens when you do a direct rollover from one account to another, without getting your hands on the money), and you type that code into Turbotax, the program automatically puts the word "rollover" on line 4a of the Form 1040. However, in my case, I just answered the questions as asked and Turbotax told me congrats, you don't have to pay taxes on the distribution because it's a rollover. BUT - it did not put the word "rollover" on line 4a because I got the money first and then put it back later. Since I want to file electronically, I'm not sure how to comply with the IRS's request that the word Rollover show on line 4a. It would be nice if Turbotax would update the IRS's request and put it in automatically. Maybe they'll fix this by February 12, when filing begins.

[DawnC]

Since RMDs were waived for 2020, no part of the distribution was actually an RMD even though it was taken with the intention of satisfying an RMD.  In TurboTax, indicate that the distribution was not an RMD.  Indicate that you moved the money to another retirement account (or returned it to the same account), then indicate how much of the distribution you returned to the IRA.  TurboTax will include the entire gross amount on Form 1040 line 4a but exclude the amount rolled over from the amount on line 4b.  TurboTax will also include the word ROLLOVER next to the line.   

A rollover can still be done on a non-direct transfer that goes to you first as long as you replace the money within 60 days.  @hullian

[macuser_22]

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@hullian wrote:

I did a non-direct IRA rollover, taking a required minimum distribution last year, and then putting it back in the account prior to the August deadline. Usually, If the 1099-R has the "rollover" code on it (as happens when you do a direct rollover from one account to another, without getting your hands on the money), and you type that code into Turbotax, the program automatically puts the word "rollover" on line 4a of the Form 1040. However, in my case, I just answered the questions as asked and Turbotax told me congrats, you don't have to pay taxes on the distribution because it's a rollover. BUT - it did not put the word "rollover" on line 4a because I got the money first and then put it back later. Since I want to file electronically, I'm not sure how to comply with the IRS's request that the word Rollover show on line 4a. It would be nice if Turbotax would update the IRS's request and put it in automatically. Maybe they'll fix this by February 12, when filing begins.

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There is nothing to fix since the bug reported above is for a direct: code G rollover, not an indirect rollover that works fine.

When entering it you MUST answer the RMD question checking the box that "NONE of this distribution was a RMD" because is was not - there was no 2020 RMD.   Saying that it was a RMD will block the rollover.

[hullian]

Wow - thanks!!!  I was tearing my hair out over this; even called the IRS and got a total nonsense (incorrect) answer - big surprise there.....It just didn't occur to me that my having taken an RMD wasn't "really" an RMD, because there WERE no RMD's last year! Thank you thank you thank you!

[macuser_22]

Unfortunately TurboTax's wording with the question  is confusing and misleading in as much that it suggests you should answer yes to the RMD question  if you did take a RMD.  

That would be correct if you *did* take a RMD because you were *required* to take a RMD because you had a a retirement plan such as a pension or defined contribution plan that the CARES act did not waive the RMD, so some RMD's were still required, but most RMD's for IRA's and employer sponsored retirement plans were NOT required so the question should be answered no RMD.

[hullian]

I told the program that I rolled over PART of my IRA distribution, and its copy of the 1099-R is correct. BUT, the partial rollover of the distribution is NOT transferring over to the 1040. Instead, it's considering ALL of the distribution having been rolled over, and so is putting a zero on line 4b, instead of a taxable amount. AND, it will not let me override. Is this a glitch others have seen as well? I tried deleting the 1099 and doing it over again, but the same thing keeps happening.