Rollover IRA

[dmertz]

As Opus 17 said, you (or the plan) have the codes swapped.  Code H is for a rollover from the designated Roth account in the 401(k) to the Roth IRA.  Code G is for the rollover from the traditional account in the 401(k).

Code G in this case could indicate a rollover to either a traditional IRA or a Roth IRA, or a combination of such rollovers.  You would have to review your transaction summaries to understand what is being reported on the code-G From 1099-R.  If this Form 1099-R represents a split rollover with the after-tax portion going to the Roth IRA and the pre-tax portion going to the traditional (rollover) IRA, which is a distinct possibility given the non-zero amount in box 5, you'll need to split the code-G Form 1099-R into two for entry into TurboTax, one for each portion of the rollover.

The code 1B Form 1099-R represents the overall investment loss in the designated Roth account in your 401(k), the portion of contribution basis that exceeded the amount rolled over to your Roth IRA.

The amounts in box 5 represent you after-tax basis.  Given that you received the code-1B From 1099-R, I would expect the amount in box 5 of the code-H Form 1099-R to equal the amount in box 1 and the entire amount rolled over from the designated Roth account in the 401(k) to the Roth IRA has become contribution basis in the Roth IRA.  TurboTax will track this addition to your Roth IRA contribution basis when you enter the code-H From 1099-R.

[gulsheenk]

@dmertz @Opus 17 @JulieS 

Thanks for your messages.  You all are correct; I mixed my codes in my note above. Apologies for that.  Good news is that I accurately entered them in Turbo Tax.  

So regarding 1099-R form with code 1B, I do not have any number in box 1 or 2a or any other box than in box 5.  Thanks @dmertz for explaining that 1B represents "the overall investment loss in the designated Roth account in your 401(k), the portion of contribution basis that exceeded the amount rolled over to your Roth IRA" So, in Turbo Tax, after entering information, it asks for :

a.) Was this a plan loan that you had when you left a job or the plan ended?  I have selected "No, this was another type of distribution".  The other option is "Yes, this was a qualified plan loan offset". 

Please let me know if this needs to be changed.  

b.) Then the next screen prompts me with "What did you do with the money from Fidelity Investments <Employer name> 401K plan? And it has the following options:

* I moved the money to another retirement account (or returned it to the same retirement account)

* I did something else with it (cashed out, etc.)

None of these options align with overall investment loss in the designated 401K Roth account.  What should I do?

Thanks!

[gulsheenk]

@dmertz : a friendly reminder for the two Turbotax related questions above. 

[dmertz]

"So, in Turbo Tax, after entering information, it asks for :

a.) Was this a plan loan that you had when you left a job or the plan ended?  I have selected "No, this was another type of distribution".  The other option is "Yes, this was a qualified plan loan offset"."

TurboTax asks this question because for a qualified plan loan offset from a designated Roth account of someone under age 59½ codes 1, B and M all apply.  However, only two codes are permitted on a Form 1099-R, so the IRS instructions for such a distribution indicate that the code M should be omitted, requiring TurboTax to ask this question to determine if a code M was omitted.  Of course a plan loan offset cannot have a zero gross-distribution amount, so it's obvious that this was not a qualified plan loan offset.  TurboTax isn't programmed quite well enough to figure that out and bypass the unnecessary question.  All that said, you correctly answered No.

Regarding question b), CFR 1.402A-1 Q&A-6(b) says:

(b) If the entire account balance of a designated Roth account is rolled over to another designated Roth account in a direct rollover, and, at the time of the distribution, the investment in the contract exceeds the balance in the designated Roth account, the investment in the contract in the distributing plan is included in the investment in the contract of the recipient plan.

This regulation specifies that the rollover was to another designated Roth account, however, Treasury Decision 9324 IRS 2007-22 I.R.B.1302 which established CFR 1.402A-1 says that the same thing applies to a rollover to a Roth IRA.  Because you did roll the entire balance of the designated Roth account over to the Roth IRA, this means that you should enter this Form 1099-R and indicate that you moved the money to another retirement account and that you rolled over the entire amount.  Doing so will cause TurboTax to add the box-5 amount to your basis in Roth IRA contributions but will have no effect on your tax return itself.  (I'm not quite sure why Fidelity did not simply include this amount in box 5 of the code-H Form 1099-R along with the amount they did include there.  The amount in box 5 is permitted to exceed the amount in box 1.)

[gulsheenk]

@dmertz :  thanks for your comprehensive responses to my questions for 1099 form with code 1B

1B represents "the overall investment loss in the designated Roth account in your 401(k), the portion of contribution basis that exceeded the amount rolled over to your Roth IRA" 

Best, 

Gulsheen

[gulsheenk]

@dmertz :  follow up questions as I filled Turbo tax --> Federal Taxes --> Deductions & Credits ---> Retirement and Investments --> Traditional and Roth IRA Contributions 

I included $6,000 towards 2022 traditional IRA between Jan 1, 2023 and April 18, 2023  and stated the entire $6000 amount switched from traditional IRA contribution to a Roth IRA contribution (back door Roth, basically).  It then asked for Explanation Statement; it auto filled some Explanation fields (after I clicked on their link for examples).  I have the following questions:

1.) What should I state for the following fields?

a.) The Amount Transferred (Recharacterization plus earnings or losses): 

(I have already stated $6,000 in the field "The Amount Recharacterized)

b.) Reason for the Recharacterization: 

2.) It already has increased by Federal Tax Due amount - understandable! 

3.) After selecting continue through screens (I did not contribute towards 2022 Roth, Skipped the screen to share Roth IRA value on Dec 31, 2022), it states:

Your income is too high to contribute and that $6K contribution into Roth is considered excess contribution.  The ensuing screen states "Because you made an excess contribution of $6K to your Roth IRA, you will owe a 6% penalty ($360) each year that excess money remains in the IRA"

What am I missing or entered inaccurately for TurboTax to qualify it as a backdoor Roth transaction? 

[dmertz]

A "backdoor" Roth involves a Roth conversion, not a recharacterization from traditional to Roth.  You did not "switch" your contribution from traditional to Roth.  Go back and tell TurboTax that you recharacterized $0, not $6,000 (or just delete the $6,000 entry where you are asked how much was switched).

[gulsheenk]

It worked!  Thanks a BUNCH! 

So do I need to do any other step or update any other screen to notify that it's back door Roth ?

Best!

[Opus 17]

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@gulsheenk wrote:

It worked!  Thanks a BUNCH! 

So do I need to do any other step or update any other screen to notify that it's back door Roth ?

Best!

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So far, you have described a rollover from a designated Roth 401k account to a Roth IRA, and the rollover of a pre-tax 401k account to a traditional pre-tax IRA.  

In other words, pre-tax to pre-tax and Roth to Roth.

Nothing you have described is a conversion, front or "back" door.  A conversion would be transferring money from a pre-tax account to a Roth account and paying income tax on it.  Why do you think you have a conversion?

[dmertz]

The Roth conversion performed in 2023 is reportable on your 2023 tax return when you receive the 2023 Form 1099-R (most likely code 2 or code 7, depending on your age) next year.

(Hopefully you actually did a Roth conversion and not a recharacterization.)

[Opus 17]

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@gulsheenk wrote:

@dmertz :  follow up questions as I filled Turbo tax --> Federal Taxes --> Deductions & Credits ---> Retirement and Investments --> Traditional and Roth IRA Contributions 

I included $6,000 towards 2022 traditional IRA between Jan 1, 2023 and April 18, 2023  and stated the entire $6000 amount switched from traditional IRA contribution to a Roth IRA contribution (back door Roth, basically).  It then asked for Explanation Statement; it auto filled some Explanation fields (after I clicked on their link for examples).  I have the following questions:

There may be more facts missing here.

Did you only perform the rollovers previously discussed (pre-tax 401k to IRA and Roth 401k to Roth IRA), or did you also contribute $6000 of new funds toward your IRA?  

If you plan those $6000 of new contributions to be non-deductible but contributed to a pre-tax IRA, then you should have a form 8606 with your tax return.

Then, if you want to do a "back door Roth conversion", you would convert the IRA to a Roth IRA.  However, even though you can make contributions in 2023 that are designated for 2022, the Roth conversion is only reported on your 2023 tax return if it happened in 2023 (it is not retroactive like contributions can sometimes be.)

However, if you have a pre-existing pre-tax balance in your IRA, the back door Roth IRA conversion will not work the way you think it works.  This doesn't go on your 2022 tax return but it may be something we need to talk about. 

[gulsheenk]

@Opus 17 Sorry, I am not sure what you are referring to.  I had performed the following steps for back door Roth:

1.) Ensure Traditional IRA account was $0 (for this, I had worked with Fidelity to move my funds from traditional IRA account to the current Employer's 401K account)

2.) Transferred $6,000 as 2022 contribution towards Traditional IRA account

3.) Converted  $6,000 from the Traditional IRA account to Roth IRA account.  

Did I miss any step?  Thanks! 

[Opus 17]

@gulsheenk 

A transfer is not a contribution.  Exactly how did you fund the traditional IRA?  

[gulsheenk]

I had transferred $6K from my personal investment non-retirement Fidelity account to the Traditional IRA account.  Any concerns here?

[Opus 17]

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@gulsheenk wrote:

I had transferred $6K from my personal investment non-retirement Fidelity account to the Traditional IRA account.  Any concerns here?

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I'm confused because you have reported several different versions of events.  If I have everything put together, you did 5 separate transactions.

1. A rollover from a Roth 401k at a previous employer to a Roth IRA with a 1099-R with code H.  This is reported in the year it happened and is non-taxable.
2. A rollover from a pre-tax 401k at a previous employer to a traditional IRA (you said Fidelity) with a 1099-R with code G.  This is reported in the year it happened and is non-taxable.
3. You transferred or rolled over the pre-tax IRA at Fidelity into the workplace plan of your current employer.
4. You made a $6000 non-deductible contribution to a traditional IRA in February 2023 but designated it for the 2022 tax year.
5. You converted the $6000 IRA to a Roth IRA in February 2023 (a "back door Roth conversion".)

Did I get that right?

If so, then where you might have a problem, is with the dates of steps 3, 4 and 5.  Can you please confirm the dates of those steps?  Also, if you made a non-deductible contribution to a traditional IRA that was designated for 2022, your 2022 tax return should include a form 8606.  Can you confirm that form is included in your tax return?