topic 1099-R Rollover in Retirement tax questions

1099-R Rollover

mmerica — Thu, 20 Feb 2020 14:48:05 GMT

My mother died in 2019. She had an IRA which I inherited and rolled over to an IRA. I received a 1099-R from the distributing bank. When I enter the 1099-R in Turbo Tax it says I own taxes even though it was rolled over to an IRA in my name. Why is it doing this, how do I fix it as I obviously do not need to pay taxes.

Re: 1099-R Rollover

dmertz — Thu, 20 Feb 2020 18:23:55 GMT

The law does not permit you to roll over a distribution paid to you as a non-spouse beneficiary, so TurboTax does not allow you to indicate that it was rolled over.

If what actually occurred was a trustee-to-trustee transfer to an inherited IRA indicating your mother as teh decedent and you as the beneficiary, no Form 1099-R should have been issued because a trustee-to-trustee transfer is neither a distribution nor a rollover; you'll need to get a corrected Form 1099-R showing that $0 was distributed. However, if the money was paid to you personally, the Form 1099-R is correct, the distribution is taxable to you and your deposit of that money into any IRA is an excess contribution subject to penalty (at least to the extent that it exceeds what you are eligible to contribute as a new contribution for the year to an IRA in your own name, not to an inherited IRA for your benefit, which you would need to be reported under Traditional and Roth IRA Contributions). If this has resulted in an excess contribution, you have until the due date of your tax return to obtain an explicit return of excess contribution from the IRA; contact the IRA custodian.

Re: 1099-R Rollover

kewh — Wed, 11 Mar 2020 19:35:36 GMT

The reply from dmertz doesn't apply to a non-spouse beneficiary's direct rollover to an Inherited IRA.

I did a direct rollover of my father's 401k to an Inherited IRA, permissible by law. I received a 1099-R for the rollover amount, and a separate 1099-R for the annual RMD (required minimum distribution). The payer confirmed that a 1099-R must be issued for any and all distributions, whether the money is paid to another qualifying plan or received personally. The code in Box 7 indicates the type of distribution, which determines whether or not the event was taxable. (My rollover 1099-R, Box 7 has code 4G, indicating a direct roll-over to a qualified plan, and Box 2a shows no taxable amount.)

TurboTax prompts are confusing. The 2019 tax year software only has options to indicate rollovers to a Roth 401k or Roth IRA. (An Inherited IRA has a different tax treatment.) I answered "No" to this being a Roth 401k or a Roth IRA, and "No" to the question: "Was this withdrawal an RMD?" The answer "No" is shown as "not common." I doubt Inherited IRAs are uncommon, so I've provided this response to help other, potentially confused users.

(Note: The second 1099-R, for my annual RMD, is a "Yes" to the RMD withdrawal question, and correctly has a taxable amount in box 2a.)

Re: 1099-R Rollover

macuser_22 — Wed, 11 Mar 2020 19:51:23 GMT

@kewh wrote:

The reply from dmertz doesn't apply to a non-spouse beneficiary's direct rollover to an Inherited IRA.

I did a direct rollover of my father's 401k to an Inherited IRA, permissible by law. I received a 1099-R for the rollover amount, and a separate 1099-R for the annual RMD (required minimum distribution). The payer confirmed that a 1099-R must be issued for any and all distributions, whether the money is paid to another qualifying plan or received personally. The code in Box 7 indicates the type of distribution, which determines whether or not the event was taxable. (My rollover 1099-R, Box 7 has code 4G, indicating a direct roll-over to a qualified plan, and Box 2a shows no taxable amount.)

TurboTax prompts are confusing. The 2019 tax year software only has options to indicate rollovers to a Roth 401k or Roth IRA. (An Inherited IRA has a different tax treatment.) I answered "No" to this being a Roth 401k or a Roth IRA, and "No" to the question: "Was this withdrawal an RMD?" The answer "No" is shown as "not common." I doubt Inherited IRAs are uncommon, so I've provided this response to help other, potentially confused users.

(Note: The second 1099-R, for my annual RMD, is a "Yes" to the RMD withdrawal question, and correctly has a taxable amount in box 2a.)

dmertz answer was correct and refereed to an inherited Traditional non-spousal *IRA*, not a 401(k). The code 4G indicates that yours is was rolled into an inherited Traditional IRA that should remain in the name if the deceased with you as benificuary.

It is not necessary for the interview to ask additional questions because there are only 3 possibilities, A 401(k) Roth, a Roth IRA, or a Traditional IRA. If the answer to the first 2 are no the no further question is necessary.

Re: 1099-R Rollover

dmertz — Wed, 11 Mar 2020 20:08:07 GMT

The original question and my answer was in regard to an inherited IRA, not an inherited account in a qualified retirement plan; a distribution from an inherited IRA to a non-spouse beneficiary is indeed not permitted to be rolled over (although Congress has been discussing possible changes to the law to allow such rollovers).

kewh, the code 4G in your case indicates that the rollover was from a qualified retirement plan like a 401(k), not a distribution from an IRA. Such a rollover by a non-spouse designated beneficiary is permitted, but only as a direct rollover (indicated by the code G in this case).

Re: 1099-R Rollover

JLP1976 — Fri, 22 Jan 2021 00:56:05 GMT

I took an RMD in January 2020 for a non-spouse inherited IRA. Subsequently, under the provisions of the CARES act, I reversed the RMD in July 2020. I have now received the 1099-R showing the distribution as being fully taxable. My understanding is that I should now show the same amount as a rollover back into the IRA, as the IRS will treat this reversal as a 60 days rollover. My problem is that TurboTax does not provide a rollover option for non-spouse inherited IRA, presumably because they are not allowed under normal circumstances. Is there a work around for this special case allowed by the CARES act?

Re: 1099-R Rollover

DawnC — Fri, 22 Jan 2021 00:59:01 GMT

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.

If you did not substitute other funds for the amount withheld for taxes so as to complete the rollover of the entire gross amount of the distribution, the amount of the withholding remains distributed, not rolled over, and subject to tax; it's too late to complete a rollover of that portion of the distribution. If the overall tax liability determined on your tax return is less than your total withholding, including the amount withheld from the IRA distribution, you'll get a tax refund.

@JLP1976

Re: 1099-R Rollover

macuser_22 — Fri, 22 Jan 2021 01:03:11 GMT

@JLP1976 wrote:

I took an RMD in January 2020 for a non-spouse inherited IRA. Subsequently, under the provisions of the CARES act, I reversed the RMD in July 2020. I have now received the 1099-R showing the distribution as being fully taxable. My understanding is that I should now show the same amount as a rollover back into the IRA, as the IRS will treat this reversal as a 60 days rollover. My problem is that TurboTax does not provide a rollover option for non-spouse inherited IRA, presumably because they are not allowed under normal circumstances. Is there a work around for this special case allowed by the CARES act?

When you enter the 1099-R and after the "Tall us when this person was born" screen, it will ask if it was a RMD. Check the box that says "No - none of this was a RMD" and the rollover screen should come up.

For 2020 there were NO RMD's at all so it was not an RMD and can be rolled over.

Re: 1099-R Rollover

JLP1976 — Fri, 22 Jan 2021 01:05:02 GMT

Thanks for the prompt reply, DawnC. I don't know how to do what you outlined. When I indicate that the I inherited the ira, the software does not provide any means to indicate a rollover. Am I missing something?

Re: 1099-R Rollover

JLP1976 — Fri, 22 Jan 2021 01:15:24 GMT

I have tried that. At the "Who did you inherit this IRA from?" screen, I selected "Someone else who passed away" and hit continue. Next screen: Did you have nondeductible contributions for this IRA? I answered: No. Next screen: Deceased was born before Jul 1, 1948. Next screen: None of this withdrawal was a RMD. Next screen: Review you 1099-R info (main screen).

Re: 1099-R Rollover

macuser_22 — Fri, 22 Jan 2021 01:13:56 GMT

@JLP1976 wrote:

Thanks for the prompt reply, DawnC. I don't know how to do what you outlined. When I indicate that the I inherited the ira, the software does not provide any means to indicate a rollover. Am I missing something?

The screen after the RMD screen should look like this.

Re: 1099-R Rollover

JLP1976 — Fri, 22 Jan 2021 01:23:49 GMT

I am using the online version, and my screen does not look like this. The top part is similar. My choices are This entire distribution was a RMD, Only part of this distribution was a RMD, None of tis withdrawal was a RMD. There is no parenthetical (This is not common.). I don't see the lower section at all. When I hit continue, I am taken back to the main screen.

Re: 1099-R Rollover

macuser_22 — Fri, 22 Jan 2021 01:47:24 GMT

@JLP1976 wrote:

I am using the online version, and my screen does not look like this. The top part is similar. My choices are This entire distribution was a RMD, Only part of this distribution was a RMD, None of tis withdrawal was a RMD. There is no parenthetical (This is not common.). I don't see the lower section at all. When I hit continue, I am taken back to the main screen.

I just tested this in the online version and you are correct - the online version does not offer that screen. I can only suggest contacting customer support, but do not be surprised if they have no idea.

I don't know what the solution is.

BTW: the rollover can ONLY be back to the same IRA that the money came from since you are just undoing the RMD distribution.

@DawnC - perhaps you can pass this on or offer a solution for online users.

Re: 1099-R Rollover

DawnC — Fri, 22 Jan 2021 02:06:04 GMT

Will do - thank you! @macuser_22

Re: 1099-R Rollover

JLP1976 — Fri, 22 Jan 2021 02:44:28 GMT

@macuser_22 thanks for confirming that I am not losing my mind. I will contact Customer Support. For reference, were the screens shots you posted from the desktop version? Also, Windows or Mac?

Also, I did put the money back where it came from.

Re: 1099-R Rollover

macuser_22 — Fri, 22 Jan 2021 03:01:58 GMT

@JLP1976 wrote:

@macuser_22 t Also, Windows or Mac?

Mac desktop, but I am sure the Windows desktop works the same way.

(I will report this to the Moderators so the different behavior of online and desktop can be investigated and the online version needs to have a way to roll back inherited RMD's.)

Re: 1099-R Rollover

JLP1976 — Fri, 22 Jan 2021 04:01:32 GMT

This is curiouser and curiouser. I spoke to a customer service rep and, in the process, stumbled onto something. I had been using a record brought in from last year's TT file. As I went through the entries online with the rep, I showed her that if I change the distribution code from 4 (Death) to 7 (Normal Distribution), everything works as expected. Then I created a new 1099-R as just to show her every step. When I got to the page that asks if there are any uncommon situations, I had selected: I inherited this IRA. She stopped me and told me to select None of these apply. When I did, the rollover screen appeared at the end. Oddly enough, though, when I made the same change on my original 1099-R record, nothing changed. She said I did not need to choose "I inherited this IRA" because I had already entered the distribution code 4. This is not very clear to the user.

Re: 1099-R Rollover

macuser_22 — Fri, 22 Jan 2021 04:10:54 GMT

A code 7 is *your* IRA and NOT an inherited IRA, so the interview will be different - that might work as a workaround UNLESS there is an amount of Federal tax withholding in box 4. Then the IRS will receive a copy of what you entered for the 1099-R and entering a code 7 in place of a code 4 is sure to receive an audit letter from the IRS. (If nothing in box 4, then ONLY the 1040 is sent to the IRS and not the 1099-R that you entered.)

Re: 1099-R Rollover

JLP1976 — Fri, 22 Jan 2021 04:18:59 GMT

I was probably not clear in my notes. I only used 7 as an example to show the rollover screen that should come up at the end. When I created the clean 1099-R, I used 4 and None of the above I got the same rollover screen. The only workaround in this whole mess is that one may need to create a "clean" 1099-R and do not select "I inherited this IRA" if you want to see the rollover screen at the end. You are quite right to point our that all of the entered information must be consistent with what is sent to the IRS.

Re: 1099-R Rollover

victor15 — Tue, 26 Jan 2021 14:21:05 GMT

I have the same issue. But when I click "none of these apply" I still don't get the rollover screen. Ugg kind of at a loss right now