Desktop Home and Business does not properly treat ROTH conversion from 401K after taxes withheld

[srpatel55]

Hi Kelly or others

I have struggling to see why lines on 1040 4a/b and section II of form 8606 not have any info after filling out 1099-R.

Line 1 - $100,000

Line 2 - $100,000

Line 4 - $20,000

Line 7 - 7

Line 14 - $2,000

After the transaction, the $78,000 were automatically transferred next day after withdrawl into the ROTH account.

I answer all the questions correctly but I do not get anything shown proper rollover into ROTH.  I have deleted and recreated 1099-R but nothing seems to do it right.

Please advise what I need to do this correctly.

Any help to resolve is very much appreciated.

Thanks

Shailesh

[VolvoGirl]

Well in the first place the 1099R for a 401K should end up on 1040 line 5a and 5b.   The whole $100,000 will be taxable.   Did it go into a ROTH IRA or ROTH 401K account?   @dmertz 

[srpatel55]

Hi Volvogirl

Thanks for helping me again this year.

I see $100,000 in 5b.  And it ($78,000) went to a regular ROTH.

[srpatel55]

Another data point ..  I have done a couple ROTH conversions last couple years for $80,000 each and did not withhold any taxes like this time (Fed $20,000 and State $2,000), and the Box 7 was coded "G" rightfully as it was a full rollover.  Then on 1040 on those years, next to 5b on 1040 there was "ROLLOVER" written in smaller font telling me it did the rollover to ROTH successfully.

This time, the Box 7 value "7" looks appropriate and when it prompted me how much I rolled over, I stated "$78,000" but then there is no "ROLLOVER"besides the 1040 line 5b.

Is my doing this differently and allocating taxes from it the cause of not being considered a ROLLOVER or is the 1099-R wrongly coded, or is there something else I need to do, or is there a problem with the software somewhere?

Thank you

SP

[VolvoGirl]

That sounds right.  What do you think is wrong?  Did you have a basis in the regular 401k account?  1040 line 4 should be blank.   The 1099R goes on the line 4 or 5 from where it came out of, not where it's going to.

After you entered the 1099R did it ask what you did with it?  

What did you do with the Money? Say you moved the money to another retirement account.

Then check the box.... You did a combination of rolling over, converting or cashing out the money.

Then another box opens up...Amount converted to a Roth account.  Enter the 78,000.

The 20,000 and 2,000 withholding will just show up as payments on 1040 line 25b and your state return.   Those amounts are treated as a cash distributions and taxable.   Basically you got the cash and used it to send in payments towards the tax.  That's why the full 100,000 show up taxable on line 5b.  

By the way how old are you?  Do you need to take the RMD from your 401k or IRA accounts?  

[VolvoGirl]

Your prior years may be wrong.  Or they didn't go into a ROTH account if they weren't taxed on line 5b.  Conversions are not rollovers.   @dmertz   

[srpatel55]

Thanks for the explanation Volvogirl.

I am 70 and not yet pulling out any RMD.

The fact that prior years it did say as I mentioned  "Then on 1040 on those years, next to 5b on 1040 there was "ROLLOVER" written in smaller font telling me it did the rollover to ROTH successfully." 

However, this time, should I see the same verbiage "ROLLOVER" in smaller font next to 1040 line 5b $100,000?  Else how would I know it is a rollover or not. 

Thank you

SP

[srpatel55]

So, the difference it that if one transfers the entire amount, then it is a ROLLOVER, else it is a conversion, and therefore it does not say ROLLOVER near line 1040 5b?  Is this the correct interpretation?

[VolvoGirl]

There is a new check box that says Rollover on 1040 form this year so it doesn't type out "Rollover".

There is a new line 5c on the 1040
1040 line 5a is the gross amount
1040 line 5b is the taxable amount
1040 line 5c is 3 checkboxes - 1 Rollover, 2 PSO, 3 for code

[VolvoGirl]

I took a screen shot of the 1040 line 4 & 5 

[srpatel55]

Oh ... OK.  Did not know this changed form.

5a is empty  ==> Shouldn't this have $100,000  from the Line 1 of 1099-R shown here?

5b  has $100,000

and

5c has Rollover checked.

[VolvoGirl · Accepted solution]

That's right for 5a to be empty if it is the same amount as 5b.     The IRS says....

If your pension or annuity is fully taxable, enter the total pension or annuity payments (from Form(s) 1099-R, box 1) on line 5b; don’t make an entry on line 5a.

See IRS 1040 Instructions for line 5 page 28 first paragraph middle column
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Thought of a couple other questions I wanted to ask you.  Did the prior years have taxable amounts on line 5b?  

And what did the Roth conversion come from and go to?  Was it from a regular 401k into a ROTH 401k or a ROTH IRA?  

Oh and somewhere above you said  "regular ROTH"  What do you mean regular?  There is not a "regular" ROTH.    A regular account is usually the pre -tax 401k account or a Traditional deductible IRA account.

[srpatel55]

Ok, I got it that if the amount is the same then 5a can be rightfully be empty.

Yes, both prior years have 1040 5b taxable amounts in them.

All these conversions have been from 2 different 401K accounts to the same ROTH IRA accounts.  Sorry, my response was not correctly stated.

[dmertz · Accepted solution]

Form 8606 is not involved because the distribution was from a 401(k), not from an IRA.

Box 5c Rollover should be marked, but it's possible that TurboTax is failing to do so.  At the moment I don't have TurboTax in front of me to test.  As VolvoGirl said, make sure that you have indicated that you moved the money to another retirement account, that you did a combination of rolling over, converting and cashing out, and that you converted $78,000 to a Roth IRA.  You can confirm that TurboTax is treating it as a rollover to a Roth IRA by reviewing Part V of the IRA Information Worksheet where in the 2025 Transactions section it will show $78,000 on the line for Conversion contributions taxable at conversion.

[srpatel55]

Hi Dmertz

Nice to meet you ... 

Volvogirl did help me a lot and we did confirm that 5c does have a check mark on Rollover, so we are good there.

As per your suggestion, I did check the IRA Info Wks Part V  "2025 Transactions - Contributions" section, and line35 does indicate $78,000 on the line for "2025 - Conversion contributions taxable at conversion".  Also I see "2024 Balances (Basis - Before 2025 Transaction)" section line31 "2024 Transactions - Contributions" with $80,000.  I hope you agree both these entries are showing up as they should.  

My main concern all along had been if this transaction was treated as proper ROTH conversion / Rollover.

So, I think I am good now.  If I have any further questions, I will let you know. 

Thanks

SP