1099R - Rollover IRA - 5498 FMV

[Epislon834]

Hello Tax and TT gurus,

  Having received a 1099-R as part of a 401(k) -> Rollover IRA distribution, the FMV value reported on the 5498 which is asked for on the, "Value of Traditional, SEP, and SIMPLE IRAs on December 31, 2021" question within TT, is being used (I believe incorrectly) in Form 8606 calculations which ends up with income being reported on Line 4b on the 1040.   --as a Rollover, shouldn't the entire rollover amount be a non-taxable? Why is it being used in 8606 calculations? 

[DanaB27]

Yes, if you rolled over your 401(k) to a traditional IRA then this will not be taxable, please review the follow-up questions carefully:

1. Click on "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R”
3. Verify that the IRA/ SEP/ SIMPLE is not checked since it was a rollover from a 401k
4. On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
5. On the "Did you move the money to a Roth IRA?" screen answer "No"

Since it was a rollover from a 401k Form 1040 line 5b (taxable amount) should show $0 and state ROLLOVER next to it.

[Epislon834]

Thank you for the quick reply!  I deleted all 1099-R's and started over on that part from scratch:

 a.) 1099-R #1:   401(k)  -> Rollover IRA  (shows correctly as non-taxable)

b.) 1099-R #2:    401(k) after tax contributions -> Mega Roth contribution  (shows correctly as non-taxable)

c.) 1099-R #3:     Backdoor Roth <spouse> (shows correctly as non-taxable)

d.) 1099-R #4:     Backdoor Roth <me> (incorrectly, I believe, part of it becomes taxable after reporting the FMV amount from the rollover associated 5498 from 1099-R #1 from above.  

Any thoughts?  If I leave the FMV at 0.00, everything is good. -Almost seems like TT is associating the Rollover IRA amount with the Backdoor Roth IRA amount from 1099-R #4?  Maybe a TT bug?  

[DanaB27 · Accepted solution]

Yes, part of your traditional to Roth conversion will be taxable because you had pre-tax funds rolled over from the 401k to the traditional IRA. Please be aware, if you had a value in any traditional, SEP or SIMPLE IRAs on December 31, 2021 with pre-tax contributions then each distribution will have a part allocated to the basis and a part allocated to the pre-tax funds. Therefore, each distribution will be partly taxable.

[lihsin]

I rolled over my 401k to a traditional IRA. In federal income return, it works via your method But it does not work in Alabama state tax, it still is within taxable income.

It shows in "About Your retirement Distributions" part with the total amount. It makes the AL taxable income is higher than the federal taxable income. What should I do?

[DanaB27]

TurboTax should make it automatically make it nontaxable in AL. If not please edit it during the state interview on the "About Your Retirement Distribution" screen.

@lihsin