1099-R roth withdrawal without rollover

[RMartIndiana]

I'm helping my son with his taxes and using TurboTax Deluxe.

He moved some Roth and Traditional 401k/IRA $ last year when he changed employers.

He also withdrew $ (less than $4k) from an old Roth 401k to cash without a rollover and did not move it to another Roth later (which I wasn't aware of and would have advised not to do).

So, he's subject to an early withdraw penalty as a result and should be subject to tax on a portion of the value withdrawn (the growth/income portion as ordinary income as I understand it --- but not the original $ he put in).

He received a 1099-R by mail for this transaction which is blank in box 2a and has box 2b "taxable amount not determined" checked. When this is input into TurboTax it interprets the full 'gross distribution' in box 1 as taxable even though it actually is not. There is also a transaction statement on the company's website that shows the actual taxable portion as "Roth 401k taxable amount eligible to be rolled over" as well as the non-taxable amount eligible to rollover. There is also another 1099-R on the website that shows the internal transaction (rollover) from the group plan account to my son's individual account which notes the taxable vs non-taxable portion.

My son called to ask about the 2 different versions of the 1099-R (one sent by mail and the other "internal transaction" one on the website) and the issue created by the one he received in the mail which doesn't calculate the taxable portion. He was advised by the company these forms were correct 'as is' and that he should submit both to his tax preparer and "they'll know what to do with it".

I don't see how to input this into TurboTax in a way to account properly for the lesser taxable amount while also inputting the actual values from the 1099-R he received by mail and as I assume would have been provided to the IRS.

Any advice?

Thank you

[DianeW777]

Yes, the first 1099-R for the Roth distribution requires you to know his earnings and enter that portion in Box 2a.  Once that is accomplished you will be able to go forward with only the taxable amount showing on the tax return. And yes, a penalty will be part of his tax return for taking the money early.

If one of the 1099-R for the direct rollover has a code G in Box 7, then this would be a direct rollover that TurboTax will know based on the code.  None of that would be taxable on the return.

[RMartIndiana]

Thank you for the reply.

The 'internal' 1099-R (which is on the website but was not mailed to my son) has code H.

The version mailed to my son has code J.

So, you are suggesting we provide a value for box 2a (for the lesser amount we know is taxable) even though the form was provided with this field blank and with box 2b "Taxable amount not determined" was checked?

If so, do we then 'uncheck' this box for the input in TurboTax?

Do we also need to enter the details for the 'internal' version of the 1099-R which wasn't actually provided to him?

Thank you.

[AMKarim]

Greetings- I have a similar issue which I will describe below in as much detail as I can, but this is appears to be a GLITCH in Turbotax that needs to be fixed ASAP as it makes a huge difference in taxable income. I received one 1099-R which combines two separate transactions. Below are the details of the situation:

1099-R Details:

BOX 1 (Gross Distribution) of the 1099-R has $240,000; BOX 2a (Taxable Amount) has $120,000. Box 7 has only one Code- "G". The remainder of the 1099-R fields are either blank or unchecked, including Box 2b.

The Two Transactions Details:

A) Direct rollover Conversion of $120,000 to a Roth IRA (this shows as the taxable amount in BOX 2a); and

B) Direct rollover of $120,000 to a traditional IRA (this is non-taxable).

I enter everything as explained above in TurboTax; I then answer the follow-up questions which are designed to let the program know what I did with the money. THE GLITCH IS THAT THE QUESTIONS ARE NOT BROKEN DOWN BY THE TAX STATUS OF THE DIFFERENT PARTS OF THE GROSS DISTRIBUTION. SO YOU CAN ONLY ANSWER THESE QUESTIONS ONE WAY OR THE OTHER, WHICH LEADS TurboTax TO EITHER CONSIDER THE GROSS DISTRIBUTION IN BOX 1 AS TAXABLE OR AS NON-TAXABLE. THIS RESULTS IN EITHER ZERO TAX (CONTRARY TO THE $120,000 ENTERED IN BOX 2a, WHICH IN THIS CASE SEEMS TO GET TOTALLY IGNORED BY TurboTax); OR DOUBLE THE TAXABLE AMOUNT ENTERED IN BOX 2a (WHICH AGAIN IGNORES THE TAXABLE AMOUNT OF $120,000 ENETERED IN BOX 2a.)

The financial institution issuing the 1099-R is refusing to issue two 1099-R forms, one for each transaction. They say what they did is right and common practice, which after doing some research, I found to be true.

To TurboTax: I tried to include all relevant facts in detail so you can evaluate and fix the issue. Many thanks in advance for your understanding cooperation, as the filing deadline is fast approaching. Please note that in my case I was able to spot the error (OF ALWAYS IGNORING THE TAXABLE INCOME ENTERED IN Box 2a OF 1099-R) due to the large difference in the calculated tax ($68,000 vs $34,000). Other users of TurboTax may not be so lucky.

[SusanY1]

In order to get TurboTax to treat this properly, you will need to enter it as if you received two separate 1099-R forms, even though you only have one physical form.  This will allow the program to address the taxability of the two separate transactions.  It will not cause any matching issues with the form and the IRS due to the disparity in the number of forms since the data is aggregated on the tax return itself.  

@AMKarim 

[RMartIndiana]

@SusanY1 ; @DianeW777 

The response from Susan in this discussion answers the question from AMKarim.
It is not quite the same question as the one I asked in my original post or in my reply to Diane.

I'm still looking for a response to my follow-up questions to Diane please.

Thank you. 

[SusanY1]

For your son's return, it sounds like you will need to enter as if there are 2 1099s and also make a manual entry in Box 2a to address the taxable part for the one where there should be tax.  Do not uncheck the taxable amount not determined box (this means it wasn't determined by the custodian.)

There is not a problem caused when an entry is made in the box 2a because the amount was not determined.  (There would be a matching issue if a number was there and it was reduce or removed without explanation, though.) 

If you don't have a separate 1099-R for the rolled-over portion, use the numbers from the internal 1099-R provided online and use code "H" in Box 7for an after-tax 401k to Roth IRA rollover.  

For the portion subject to tax, use code "J" in Box 7 for an early Roth distribution where an exception doesn't apply.  


[EDITED 03/25/24 12:25 AM PDT]

@RMartIndiana 

[RMartIndiana]

Thank you @SusanY1.

One more clarification... for the 1099R that I enter with the taxable portion (same as provided by mail to my son except adding a value in 2a and unchecking the 2b box for 'taxable amount not determined', should I select distribution code J as indicted on the form (early withdrawal from Roth IRA) or code 2 as you indicated in the previous reply? Code 2 doesn't seem to apply to Roth's (per the description in TurboTax).

Thank you again.

[SusanY1 · Accepted solution]

You should enter code J as per the mailed form.  

My apologies, the code 2 in my initial response was an error on my part.  I have since edited the answer to reflect that - you were just faster to read than I was to edit!

[AMKarim]

Many thanks Suzan- I have done so as a temporary solution to get it to work; but seems to me that, since BOX 2b is unchecked, then the follow-up questions by TurboTax to determine what I did to the "money" should only refer to the difference between BOX 1 and BOX 2a. All that needs to be done from a programming standpoint is to display the amount of difference when asking the questions so that the user knows what amount is being referenced. Again, I am OK with your answer for now; but there are two user-related issues that I think should be addressed:

1- I use TurboTax exclusively to do my taxes and have done so for many years. I also make these kinds of transactions often, and in the future, I would like to not have to "artificially split" the 1099-R.

2- This would definitely result in an inaccuracy in the calculated taxes if the numbers are not so great and the user assumes that there is no "hidden" glitch. More specifically, the difference in tax liability in my case was $34,000. Had the difference been only a few thousand dollars I may have not noticed the "glitch." As a minimum, the user should be warned if the amount in BOX 2a was not used AND Box 2b was unchecked. 

[davidwhip]

This is an easy topic for confusion.  There are several aspects, let's take them one at a time:

Your son's age:  I assume he is younger than required, 59.5 to just withdraw money.  If he's older just make 2A 0,

Early withdraw code - I forget the code for this on the 1099-R, but it says early withdrawal.  Different tax programs will make 2a equal to 1 (full withdrawal) or leave it blank.  Usually the taxable amount not determined will be checked.

Original investment vs gains on the investment.  The original investment may be tax free (see next item), but if the withdrawal contains growth $ then those are subject to the 10% early withdrawal penalty.

Length of time in the account:  If the first contributions were in the Roth IRA were made in 2018 or before, you  meet the five year rule.

You should search "IRS publication 590-B" and read chapter 2 for the fine details.  At the end of the day, you enter the taxable amount in line 2A for tis 1099-A and the penalty on form 5329 (another whole can of worms) or if distribution code on the 1099-R is 1, you can enter the penalty directly on schedule 2 of 1040.  See "IRS topic 557"

Hope this helps

Other waivers:  there are lots of waivers, first home purchase, illness, and so on.  I don't think these apply here.