topic Incorrect 1099R, how to correct with Turbotax in Get your taxes done using TurboTax

Incorrect 1099R, how to correct with Turbotax

tdn1 — Mon, 15 Mar 2021 17:04:26 GMT

My retirement financial institution has sent me an incorrect 1099R form. It included a direct trustee-to-trustee transfer from pre-tax IRA to pre-tax IRA as a taxable distribution. I have the corresponding documentation to show the 1099 R to be incorrect but cannot get the institution to correct the 1099 once it is issued (I am told that this is a common problem). Should I correct the info on the incorrect 1099R form when I enter it on Turbotax? How can I upload documentation/ comments onto Turbotax so that these would be part of the submitted federal and state tax return?

Re: Incorrect 1099R, how to correct with Turbotax

DavidD66 — Mon, 15 Mar 2021 17:19:45 GMT

Enter the Form 1099-R without making any adjustments.

After you enter(ed) the 1099-R, there is a page that asks "What Did You Do With The Money From [Retirement Plan]"?

Be sure you indicate that you "rolled over all of this money to an IRA or other retirement account (or returned it to the same account)." See Screen Shot #2 below.

Answering these questions correctly will result in your distribution showing up as non-taxable.

Re: Incorrect 1099R, how to correct with Turbotax

tdn1 — Tue, 16 Mar 2021 07:28:20 GMT

Thank you for your answer.

In Turbotax Premier 2020, after transferring the info contained in the 1099R, e.g. with "10" for box 1 (Gross distribution), "5" for box 2b (Taxable amount), and "G" for box 7 (Distribution code), a window did appear asking whether the money was rolled over into a Roth 401 K or not. If I answered "yes", then the whole amount in box 2b, "5" will be taxed in the subsequent calculation, and if I answered "no", the whole amount in box 2b, "5" will not be taxed. The problem I have is that only a portion of box 2b, e.g. "3", was rolled over into a Roth 401K, and Turbotax does not have a provision for reporting correctly that fractional roll-over into a Roth 401K. I presume this is an unforeseen limitation of the Turbotax program.

Re: Incorrect 1099R, how to correct with Turbotax

DanaB27 — Tue, 16 Mar 2021 14:23:06 GMT

If you moved money from the 401k to partly traditional IRA and partly Roth IRA then you will need to split your 1099-R.

Please see these instructions from user 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". (401k was rolled to both a traditional IRA and a Roth)

Re: Incorrect 1099R, how to correct with Turbotax

tdn1 — Tue, 16 Mar 2021 14:25:30 GMT

Again thank you DavidD66 for your answer.

I was thinking more about it and may be the another approach would be to split the reporting of the 1099R into 2 so that I can isolate the incorrect information and correct it your way.

To illustrate, the actual 1099R from company A reports a gross distribution of "10" with an incorrect taxable amount of "5", instead of the correct of "3". I will enter the 1099R as two components:

#1 will report a gross distribution of "3" with a taxable amount of "3" and answer that it all went to a Roth ...

... and #2 will report a gross distribution of "7" with a taxable amount of "2" and answer that none of it went to a Roth but to a Rollover IRA (which should be non taxable).

That way except for splitting the 1099R into two (which may not be exactly what the Turbotax direction says "report exactly") all the info otherwise is correct?

Re: Incorrect 1099R, how to correct with Turbotax

tdn1 — Tue, 16 Mar 2021 14:35:09 GMT

Thank you for your second answer.

I was thinking the same thing and typing a follow-up while you replied. "Great minds meet".

I take it that splitting the reporting of a single 1099R into two is OK with Turbotax reporting and IRS review, as long as the numbers contained in the split components, when aggregated together, are the same as the original 1099R.

Re: Incorrect 1099R, how to correct with Turbotax

RC519 — Thu, 10 Feb 2022 00:52:28 GMT

I have a very busy 1099-r type 7 that includes nua, taxable amount (cost basis) and box 5 has the after tax contributions which was rolled to Roth IRA. It seems TT thinks the box 5 amount is taxable. Is this another candidate for splitting my 1099 ?

Re: Incorrect 1099R, how to correct with Turbotax

DaveF1006 — Thu, 10 Feb 2022 01:04:26 GMT

@RC519 To clarify, what is the distribution code in Box 7?

Re: Incorrect 1099R, how to correct with Turbotax

RC519 — Thu, 10 Feb 2022 01:51:38 GMT

Box 7 has a 7 (normal distribution).

Re: Incorrect 1099R, how to correct with Turbotax

JohnB5677 — Thu, 10 Feb 2022 14:00:34 GMT

You can correct this by going through the interview.

Select the 1099-R that you posted
Confirm that is posted as on the 1099-R Including
1. 7 in Box 7
2. IRA box checked
Do you have info in Box 2a or Box 2b? - No
Do any of these situations apply to you? - None of these apply
How much of the $5,000.00 was an RMD? - None of this withdrawal was an RMD
Did you rollover all of this $5,000.00 (Box 1) to another retirement account?
1. Yes, I rolled over $5,000.00 to another traditional IRA or retirement account (or returned it to the same account).
Good news! You don’t owe taxes on your rollover

Re: Incorrect 1099R, how to correct with Turbotax

RC519 — Fri, 11 Feb 2022 13:12:27 GMT

I have three "live" 1099 issues .. all with box 5 issues.

(sorry if this created more confusion)

This question is about a 1099 code 7 that has numbers in many boxes ..

The total in 1, taxable Cost Basis in 2, After Tax contributions in 5, NUA in 6, code 7 in 7.

Pretty sure I answered all the questions correctly at least a few times before coming here.

TurboTax took the box 5 amount and added it to the "Taxable at Conversion" amount in

the IRA WorkSheet and on my 1040. I work in the interview mode, but check results in forms mode.

The above did not produce the desired results so I have since removed the box 5 amount and created a separate 1099 entry for that amount .. in order to get it entered correctly. So my question now is .. Is this okay to do .. splitting the 1099's .. I now have three (3) such instances on this years return? Details available on request.

Re: Incorrect 1099R, how to correct with Turbotax

skfromaz2 — Sun, 13 Feb 2022 02:31:48 GMT

Hi,

I have a very similar problem to tdn1. I initiated a trustee-to-trustee transfer of an inherited IRA. Publication 590-A says this in the "Inherited From Someone Other Than Spouse" section.

"If you inherit a traditional IRA from anyone other than your deceased spouse, you can’t treat the inherited IRA as your own. This means that you can’t make any contributions to the IRA. It also means you can’t roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. See Pub. 590-B for more information."

The receiving IRA is set up in the name of the deceased IRA owner for the benefit of me as the beneficiary. The problem is the sending institution issued me a 1099-R marked as follows.

Box 1 gross distribution: full amount specified

Box 2a taxable amount: full amount specified

2b: X mark

total distribution: X mark

Boxes 3, 4, 5 and 6: blank or zero

Box 7: 4 (death)

IRA / SEP / Simple: X mark

All state boxes (with the exception of the state code) blank

TurboTax treats this as a taxable distribution and does not provide any option to say "this 1099-R represents a trustee-to-trustee transfer of an inherited IRA" which should result in the box 1 or box 2a amounts being treated as non-taxable. This is not a "rollover" but a trustee-to-trustee transfer to an IRA specifically set up to be an inherited IRA.

I have the statement from the receiving institution saying a direct transfer (not a rollover,) for the full amount took place but don't yet have a form 5498 from them as that won't be available till May.

If I enter the 1099-R as-is I'm liable for tax on the full amount (sitting in a beneficiary IRA.) Don't enter the 1099 and, if and when the IRS asks, provide them with the story and supporting documentation? Enter a "corrected" 1099 but how? If I leave the IRA/SEP/Simple box X any amount in box 1 or 2a is taxable. Enter a corrected 1099 with zero amounts in 1 and 2a? Suck it up and get the money out of the IRA before the deadline and pay the tax at a fairly high marginal rate?

Can TurboTax be changed to recognize the type of transfer described in 590-B?

Thank you

Re: Incorrect 1099R, how to correct with Turbotax

dmertz — Sun, 13 Feb 2022 15:30:31 GMT

@skfromaz2 , a trustee-to-trustee transfer of an inherited IRA is nonreportable and you should not have received a Form 1099-R for this transaction. TurboTax knows that a reported distribution from an IRA inherited by a non-spouse beneficiary is not permitted to be rolled over, so it will not ask you if you moved the money to another retirement account.

Contact the original IRA custodian to obtain a corrected Form 1099-R showing that $0 was distributed.

(Banks treating non-reportable trustee-to-trustee transfers as reportable is a common bank error due to local branch employees being insufficiently trained in preparing the bank's forms for such transactions.)

Re: Incorrect 1099R, how to correct with Turbotax

skfromaz2 — Sun, 13 Feb 2022 20:13:52 GMT

Thanks. I forgot to mention that I did call the sending institution about modifying the 1099 and they refused to reissue but at the time I did not have the term (non-reportable) to use in the request. I'll give them another call saying that they knew it was custodian-to-custodian and the 1099 should reflect that. If they refuse to re-issue then I'll file with a "corrected 1099" plus 4852.

Re: Incorrect 1099R, how to correct with Turbotax

tdn1 — Sun, 13 Feb 2022 22:26:54 GMT

The issue I had with an incorrect 1099R was for last year's tax, but I still remember the following:

1. Once financial institutions finalized and sent out the paperwork they will rarely go back and correct it. I spent much time escalating the matter within the institution until I realized it was a great waste of time. An individual issue will not carry much weight once their books are closed.

2. I actually called up the IRS. The hold/wait time was very long, but once I got someone on the line, he was most helpful. The IRS works on the same information sent to me, in my case 1099's and 5498's for Rollover transfers & contributions, and Roth conversions. He traced out with me where all the funds mentioned on the 1099 went and if, at the end, all the funds movements are accounted for, and match the amounts in the 1099's and 5498's, the IRS is satisfied. He advised me on how to proactively explain in the return the manner in which 1099 classification was incorrect. Even with time spent being on hold, it was the most productive time I spent preparing for last year's tax. It really changed my perception as to how helpful the staff at the IRS could be.

Re: Incorrect 1099R, how to correct with Turbotax

dmertz — Mon, 14 Feb 2022 20:27:57 GMT

@skfromaz2 , for the transaction to be a trustee-to-trustee transfer the original IRA custodian must make the payment directly to the receiving IRA custodian, with the payee being something like "New Custodian Inherited IRA FBO skfromaz2." If that was done, there is no reason that they should not correct the Form 1099-R to reflect the fact that no distribution was made to you despite having mistakenly internally coded the transaction as a distribution. If they refuse and you need to file a substitute Form 1099-R (Form 4852) showing $0 in boxes 1 and 2a, you'll want to make it clear in the explanation that the payment was never made to you personally but was instead paid directly to the receiving IRA. It might be helpful to obtain from the old custodian documentation showing the payee for this distribution. Without documentation supporting an assertion that the funds were not paid to you, the IRS is likely to believe the Form 1099-R from the custodian over the substitute provided by you.

If they instead made the payment to you personally, the distribution is irrevocable and was not eligible to be deposited into another inherited IRA and the deposit of such funds into an inherited IRA would would generally be an excess contribution to that IRA. (Congress has considered changing the law to permit rollovers of such distributions, but such a change hasn't yet become law.)

Re: Incorrect 1099R, how to correct with Turbotax

skfromaz2 — Tue, 15 Feb 2022 02:57:31 GMT

@dmertz @tdn1 Thanks. I have the monthly statement from the new custodian side "skfromaz2 beneficiary IRA of skfromaz-relative" that says "direct transfer $xxxx". Which should support the claim that it was a direct transfer. I plan on calling the old custodian tomorrow so we'll see. You'd like to think they'll correct it given a proper description of what happened. I did want to give them one more chance (and to say that I'd tried twice,) before calling the IRS (the 800 # is in the small print instructions for form 4852.)

Re: Incorrect 1099R, how to correct with Turbotax

dmertz — Tue, 15 Feb 2022 12:14:42 GMT

A code-4 Form 1099-R with you as the payee is an assertion by the custodian that the payment was made to you and that's what you need to refute. The determining factor is who or what was the actual payee on the payment made by the old custodian. If the payee was you, this was an impermissible rollover. If the payee was your new IRA (or new custodian) FBO you, it's a nonreportable trustee-to trustee transfer as long as the new custodian deposited the money directly into the new inherited IRA. You would want to obtain documentation from the old custodian that indicates the payee of this payment. (If you did not have to endorse any check made out by the old custodian, presumably the payment was not made to you.)

There is a Written Determination (PLR 200204048) made by the IRS to a non-spouse beneficiary who asserted that a series of partial of transfers of an inherited IRA to several new custodians were trustee-to-trustee transfers and were not taxable, but later when the IRS received information that the beneficiary received a Form 1099-R from the original IRA custodian they revoked the original determination and made a new determination (PLR 200228023) that that transaction was a taxable distribution that was not eligible for rollover. This suggests that the IRS gives greater weight to the assertions of the old custodian than they do to the assertions of the beneficiary (absent any documentation that contradicts the assertion of the old custodian).

Re: Incorrect 1099R, how to correct with Turbotax

skfromaz2 — Wed, 16 Feb 2022 15:53:52 GMT

@dmertz I spoke to the old custodian and they (after talking to their IRA back-office people,) agreed the 1099-R shouldn't have been issued as the transfer was custodian-to-custodian. (after I made my request for a corrected 1099-R using those terms.) They will issue a corrected 1099-R to "fix" the first one. I didn't get to talk to the IRA back-office people directly so don't know what they're going to put on the corrected 1099-R to undo the "distribution" event. After playing with every code combination in TurboTax the only thing that reflects the "not a tax event" nature of the transfer it is a zero $ amount. So we'll see and I may be talking to them again.

fwiw, while on the phone with them I was looking through another file and found a copy of the form I sent to the old custodian that told them to do a transfer to the new custodian and provided the new account number and contact information. I didn't have to use that but glad I found it. Thanks for your replies and I'll update when something new happens.

Re: Incorrect 1099R, how to correct with Turbotax

dmertz — Wed, 16 Feb 2022 17:24:22 GMT

Yes, the corrected Form 1099-R must be the same as the original except have $0 in every box that on the original had a nonzero dollar amount.

I'm glad that you finally got them to see the light. That correction will avoid any issues with the IRS's interpretation of this transaction (which the IRS would have had no knowledge of had it been done correctly to begin with). What you experienced in trying to get this corrected is not unusual. Family members of mine have had the same experience that require sending emails to bank management to get the appropriate correction. Numerous people posting on the forum have had the same experience. It seems relatively universal that bank local-office personnel are inadequately trained in this area.