Do after tax contributions to a 401K when rolled over to a Roth IRA need to be reported?

[Bruce S]

I took a total distribution from my 401K in 2022 as a direct rollover Code G on 1099-R.

My 401K included both pre-tax and after-tax contributions I had made over the years.

I rolled the pre-tax contributions and earnings directly to a regular IRA.

I rolled the after-tax contributions directly to a Roth IRA.

Fidelity cut two checks directly to the custodian of the IRAs; one check for the regular IRA and one for the Roth IRA.

The 1099-R I received from Fidelity correctly shows in Box 1 the total distribution which was the sum of the two checks, and Box 2b is checked.

Box 2a Taxable Amount is Blank, which is correct as I understand this should not be taxable.

Box 5 shows the after-tax contributions which were rolled directly into the Roth IRA and matches the amount of the check to the Roth IRA.

So here's the problem, in TT Desktop there doesn't appear to be a way to separate the pre-tax to regular IRA from the after-tax to Roth IRA amounts.

I enter all the info from the 1099-R exactly, then if I answer Yes to this money was rolled over to a Roth IRA, then answer Yes to next question I made after tax contributions to this 401K, then the amount from Box 5 is pre-populated from my previous entries, then TT treats the ENTIRE distribution as taxable as if I had converted all the pre-tax contributions to a Roth IRA.

If I go to Forms view, to the Additional Distribution Information worksheet for that 1099-R, TT had checked line B5 that the Entire amount of the distribution was converted to a Roth IRA.

I can manually uncheck that line B5, and then fill in on line B6 only the amount of the after-tax contributions that were rolled to the Roth IRA, and that matches line B8 for previously taxed contributions (which had been pre-populated).

If I make those manual changes to the worksheet, TT correctly does not treat any of the distribution as taxable.

However, since this is a worksheet, I am assuming it does not get sent as part of my filed tax return.

So bottom line, my question is, using the normal TT step by step interview process, there appears to be no way to get TT to correctly calculate this unless for this 1099-R I answer a blanket NO to this money was rolled over to a Roth IRA.

So is this OK to do, and essentially not report anywhere on my taxes that some of that distribution on that 1099-R, namely the after-tax amount in Box 5, went to my Roth IRA?

[JohnB5677]

No, you should not make direct entries into the FORMS mode of TurboTax. It will void the guaranty.

I suggest you prepare two substitute 1099-R forms that reflect the two checks that were written.  The IRS deals in total numbers. So, this is acceptable to do.

1. Start at Wages & Income
2. I'll Type it Myself.
3. Scroll to Retirement plans & Social Security
4. Select IRA, 401K Pension Plans ...
5. Add Another 1099-R
6. I'll type it myself > Continue.
7. Select. I need to prepare a substitute 1099-R.
8. When you've completed the two 1099-Rs, go back and delete the original.

[Bruce S]

Thank you for the response; it is appreciated.

I have tried what you suggested.

However, by selecting Substitute 1099-R I am required to attest that the original 1099-R I received from Fidelity was incorrect, and that they have refused to provide me a corrected 1099-R, and to also provide to the IRS the communications I had with them to obtain a corrected form; all of which is not true.  I don't believe that the 1099-R they provided is incorrect, as Box 1 accurately showed the gross distribution, and Box 5 accurately showed the return of after-tax amount that was rolled into the Roth IRA.

It seems to me, based on what I can tell, the problem may be with TT.  Since the 1099-R Additional Distribution Information worksheet provides for this distinction on line B6 to show only part of the distribution rolled to Roth IRA, and by manually unchecking Line B5 and filling in the after-tax rollover amount on Line B6, then TT correctly calculates things.

So it seems to the problem is with TT, either in not asking questions in the step-by-step, about whether the entire amount was rolled into a Roth IRA vs. the entire amount; or by incorrectly transferring info to the worksheet by automatically assuming the entire amount was converted by checking Line B5 hence making it all taxable.

I'm very hesitant to provide a substitute 1099-R when I cannot attest that the one I received was wrong, nor Fidelity's refusal to correct it.

Thoughts?

[ThomasM125]

Since you are uncomfortable with the attestation, you may be able to mail your return in. When you submit your return my mail you are not required to attach the 1099-R forms, provided you don't have tax withholdings reported on them. The only thing that will appear on your return will be the pension distribution and taxable amount on lines 4(b) an 5(b) of form 1040.

[Bruce S]

Thank you SO MUCH for your responses.

Since I am working with the desktop version of TT, I created two tax return files, one where I followed your advice and separated the single 1099-R I received from Fidelity into two substitute 1099-R's to break out the pre-tax and after-tax amounts to reflect what directly rolled over to my regular IRA and what rolled over directly to my Roth IRA; and one where I kept the 1099-R as a single 1099-R, and just answered NO in the step-by-step to the question of whether any rolled over to a Roth IRA.

When I then compare the actual 1040 and all other forms which actually would get submitted when filed (not including worksheets including the 1099-R worksheets since I don't believe those actually get submitted when filing) between the two returns, there is NO difference in taxes, nor any difference in what gets reported on lines 4a, 4b, 5a, and 5b on the 1040, nor as best I can tell NO difference on any form of what actually gets filed with the IRS.

So back to my original question of whether after-tax contributions to my 401K being rolled over to my Roth need to be reported?

After following your advice to separate the 1099-R into two substitute 1099-R's, if there is no difference in what actually gets filed with the IRS, and the amount on 1040 line 5a is the same either way, and shows ROLLOVER on line 5b either way, it seems like there is no mechanism or requirement to specify that some rolled over to a regular IRA and some to a Roth IRA??

Am I missing something?

[ErnieS0]

You do need to report the rollover. How you report it depends on what is being reported on your IRA contribution worksheet.

If you split your distribution into two 1099-Rs, your after-tax contributions into your traditional IRA should appear on Part III line 14 of your IRA Info Wks.

If you are using the single 1099-R and the amount doesn't appear, you can type it in yourself using Forms mode. 

1. Tap Forms in the top right corner
2. Find IRA Info Wks
3. Enter your after-tax 401(k) contributions in Part III, line 14
4. Tap Step-by-Step where forms used to be to return to the interview mode

[dmertz]

TurboTax cannot handle a Form 1099-R for a 401(k) distribution that reports the total partially rolled over to a traditional IRA and partially rolled over to a Roth IRA.  For TurboTax to be able to handle this, you must split the Form 1099-R into two, one for the portion rolled over to the Roth IRA (box 1 and box 5 both showing the amount from box 5 of the original) and another for the portion rolled over to the traditional IRA (box 1 equal to the amount from the original box 1 minus the the original box5).  On both Forms 1099-R you should enter a zero in box 2a.

Delete the original Form 1099-R that you entered.

[Bruce S]

Thank you so much all of you for your responses.

To reiterate my situation, since one of the helpful responses about typing the info onto the IRA Info Wks directly misunderstood my scenario.  I did a single total distribution of my 401K upon retirement, as a direct rollover.  The pre-tax rolled over directly to my traditional IRA; the after-tax rolled over directly to my Roth IRA.  While Fidelity cut two checks to the custodian, they provided a single 1099-R which correctly showed in Box 1 the total distribution, and Box 5 showed the after-tax amount.

Using the desktop version of TT, I now have two tax return files for 2022: one with the single 1099-R entered exactly as received, and answering no to the interview question about converting any of this distribution to a Roth IRA; and a second file following everyone's instructions to manually split the original single 1099-R into two, one for the pre-tax, and one for the after-tax, and answering yes to the Roth IRA conversion question on only the after tax one.

After doing this, I printed out All Official Forms required for filing from both returns, and there is NO difference between them on any forms filed with the IRS, and no difference in tax owed.

The only difference between the files I can find is on forms that don't get filed with the IRS.  For the file with the split 1099-R, on the IRA Info Wks, in Part II Roth IRA, on lines 7 & 9, the after-tax rollover amount shows.

And of course I now have two 1099-R worksheets instead of the one in the file where I split them.

So..... here's my dilemma: I actually eFiled the return using the single 1099-R a couple weeks ago.  It was later that I started wondering about this whole thing and started this discussion thread.

So, do I need to Amend my return??

It appears from my experiment of creating a copy of my filed return and then manually splitting the 1099-R, that exactly the same information gets reported to the IRS, and there is no difference in tax.

I know that when my IRA provider files Form 5498 later this year they will show that rollover to my Roth IRA, so the IRS will see it, but Form 5498 gets filed by the provider, not me.

If I go to the IRA Info Wks and manually enter that info on lines 7 & 9 so that my records are correct, am I good?

Or do I need to do an amended return even though it appears nothing would change on what the IRS gets from me?

Thanks.

[dmertz · Accepted solution]

Yes, you filed resulting tax return is identical to one done by splitting the 1099-R, so there is no need to amend.  The problem is that by not indicating to TurboTax that any amount was rolled over to a Roth IRA, TurboTax will not be tracking your basis in nontaxable Roth IRA conversions properly (line 60 of the IRA Information Worksheet).  You'll need to correct your basis in 2022 conversion not taxable at conversion next year after you import your 2022 tax return to begin your 2023 tax return with TurboTax.

Splitting the Form 1099-R as I described allows correct tracking of your basis because TurboTax updates your basis correctly only if you indicate that the entire distribution reported on the entered 1099-R was converted to Roth.  Doing so causes TurboTax to mark box B5 on it's 1099-R in forms mode.  Years ago the TurboTax used to track the basis correctly whether you indicated that either all (box B5) or part (amount on line B6) of the distribution from a traditional 401(k) was rolled over to a Roth IRA, but the developers broke that functionality related to line B6 somehow and, rather than fix the actual bug they introduced, their "fix" was to simply not allow the reporting of only part of a code-G distribution as going to a Roth IRA.

[Bruce S]

Thank you to ALL who responded.

I now know what I need to do.

It really is a shame that as you say the developers "broke" the partial rollover to Roth IRA, especially because lines B5 and B6 on the 1099-R form obviously account for this.

A simple additional question (or two) in the step-by-step interview could obviously fix this; it can't be that hard to implement.

For whatever it's worth I hope someone notes this and passes it along for a future program update.

While I won't have this scenario again, based on my online research conducted in conjunction with my situation this year, this strategy of splitting a 401K distribution to both regular IRA and Roth IRA for after-tax amounts and only getting a single 1099-R from the provider seems to be somewhat common.

Having to do a manual splitting into two 1099's from a single one seems like a clumsy way to handle this, hardly what one would expect of the supposed Cadillac of Tax software choices out there.

[rls55]

I thought you might be interested to know that TT apparently did not make a software fix to your situation from last year. I ran into a slightly different but similar situation this year involving a single Fidelity 1099-R combining rollovers to both Roth and Trad IRAs. I found it interesting that your thoughts on a TT quirk and mine were pretty much identical. If interested ...https://ttlc.intuit.com/community/taxes/discussion/one-1099-r-for-rollovers-from-trad-401k-to-trad-i... 

[Bruce S]

Sad because it would be such an easy fix to do since the backend worksheets if edited manually correctly calculate everything, as I'm sure you read in my painfully long thread from last year 😁. Just poor customer service IMHO especially since this is apparently a very common scenario.

Hopefully finding this thread made answering your question this year easier.