1099-R / rollover / conversion

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Topic Author
totally_lost
Posts: 8
Joined: Thu Jan 24, 2013 5:03 am

1099-R / rollover / conversion

Post by totally_lost »

Good day,

First just allow me to express my appreciation to all the good folks on this forum who have given me invaluable advice for over a year now. My investment procedures have totally been revamped because of you and for that I'm very thankful.

Well, I have not really had a reason to post anything until now. I've searched the internet high and low, I've called my old 401k provider (John Hancock - JH), I've called Vanguard, and no one can agree on anything. JH thinks Vanguard should report the conversion and Vanguard thinks JH should report the conversion.

Here is my situation. I left my job last summer and rolled / converted my 401k into my Roth IRA account with Vanguard. My 401k consisted of employee dollars in a roth 401k and company match dollars in a traditional 401k (I'm assuming).

JH insisted on cutting one check and sending it to Vanguard. Thus this one check consisted of company match dollars that I assume still need to be taxed and also it consisted of roth 401k dollars which have already been taxed. The company match dollars with 20% vesting came out to a measly $150.00. The roth 401k money came out to $2,000.

So JH sends Vanguard $2,150 and Vanguard immediately puts the entire amount into a Roth IRA. None of this money ever went into a traditional IRA.

A day ago I receive two 1099-Rs from JH. The 1099-R for the roth money correctly states a rollover of $2,000 of which $0.00 is taxable and is coded H. No problem.

***Here is where I need help: The 1099-R for the company match dollars states that $150.00 (box 2) is taxable and is coded G. Should this not be coded 2 because technically it is not being rolled over, rather, it is being converted? I need this $150.00 to be taxable. I put this information into my tax software and the software is treating this as a rollover with nothing taxable (since it is coded G, I believe). A code of 2 would correctly tax the $150.00.***

Any help would be much appreciated.
Topic Author
totally_lost
Posts: 8
Joined: Thu Jan 24, 2013 5:03 am

Re: 1099-R / rollover / conversion

Post by totally_lost »

Just as an update, I spoke with the good folk at the tax software site, TurboTax, and it seems that if I input all that information into the system and then click:

"Rollover of 401(k) to Roth 401(k)"

then TT *does* tax the 150.00. I believe this is technically incorrect since it directly went into my Roth IRA. But that is their recommendation.

She told me that they are not declaring it a glitch in their system, rather, their advice is a way around the issue. Whatever that means.

[when I correctly click "Rollover into Roth IRA" then TT does *not* tax the 150] Anyone have any thoughts?

Thank you.
User avatar
HueyLD
Posts: 9790
Joined: Mon Jan 14, 2008 9:30 am

Re: 1099-R / rollover / conversion

Post by HueyLD »

JH has reported your distributions correctly according to IRS 1099-R instructions ( http://www.irs.gov/pub/irs-pdf/i1099r.pdf ). On page 4 it says:

"For a direct rollover of an eligible rollover distribution to a Roth IRA (other than from a designated Roth account), report the total amount rolled over in box 1, the taxable amount in box 2a, and any basis recovery amount in box 5. Use Code G in box 7."

What you need to do is to work thru the badly designed input screen for the 1099-R with $150 taxable distribution from your employer matching 401(k). On that input screen, you need to scroll all the way down to the "Additional Distribution Information" section and answer CAREFULLY all questions in the "Rollovers, Roth Conversions..." section. If you check the right box there, the $150 will become taxable on F1040 Line 16b.

I am very surprised that the TT support person couldn't help you with your question. You should call and complain about their poor service quality.
Topic Author
totally_lost
Posts: 8
Joined: Thu Jan 24, 2013 5:03 am

Re: 1099-R / rollover / conversion

Post by totally_lost »

HueyLD wrote:JH has reported your distributions correctly according to IRS 1099-R instructions ( http://www.irs.gov/pub/irs-pdf/i1099r.pdf ). On page 4 it says:

"For a direct rollover of an eligible rollover distribution to a Roth IRA (other than from a designated Roth account), report the total amount rolled over in box 1, the taxable amount in box 2a, and any basis recovery amount in box 5. Use Code G in box 7."

What you need to do is to work thru the badly designed input screen for the 1099-R with $150 taxable distribution from your employer matching 401(k). On that input screen, you need to scroll all the way down to the "Additional Distribution Information" section and answer CAREFULLY all questions in the "Rollovers, Roth Conversions..." section. If you check the right box there, the $150 will become taxable on F1040 Line 16b.

I am very surprised that the TT support person couldn't help you with your question. You should call and complain about their poor service quality.
Thank you, Huey. While I don't have the "Additional Distribution Information" on my screen (?, I have TT Delux) it does have a "Let's Double-Check Your Info" section after I click "Continue".

It asks,
"Is the IRA/SEP/Simple box checked" - No
"Rollover of 401(k) to Roth 401(k)" - No
"Was this money rolled over to a Roth IRA?" - YES
"Was Totally_Lost employed as a PSO" - No

And the 172.61 is treated not taxable. But if I click "yes" to the rollover to Roth 401(k) then it suddenly treats it as taxable.

The only thing I can think of is that code G is causing some sort of conflict with the money going into a Roth IRA since it says it is a direct rollover. No mention is made of converting. I could be way off though?

I'll keep plugging away, and probably give them another phone call.

Thank you again, Huey.
User avatar
HueyLD
Posts: 9790
Joined: Mon Jan 14, 2008 9:30 am

Re: 1099-R / rollover / conversion

Post by HueyLD »

totally_lost wrote:While I don't have the "Additional Distribution Information" on my screen (?, I have TT Delux)
Yes, the screen is there. Do the following:

(1) Click on the "Forms" icon near the upper right of the TT screen. This will take you out of step-by-step and into forms.

(2) You should see a list of forms on the left pane of your screen. Click on the 1099-R (with the $172.61 taxable) that you want to work on.

(3) Now move to the right pane of TT with 1099-R and scroll all the way down to the section as I indicated in my earlier post. Check box B5 and you will see $172.61 show up in box B4.

(4) Now click on Form 1040 on the left pane of the screen and you should see $173 on F1040 line 16b.

I did the above on my downloaded version of TT Deluxe and it worked.

You can now teach TT support personnel how to do such entries.

Good luck to you.
Topic Author
totally_lost
Posts: 8
Joined: Thu Jan 24, 2013 5:03 am

Re: 1099-R / rollover / conversion

Post by totally_lost »

Huey,

Well that does it. Well in actuality, the "forms" mode is not available to online TT users. Since I had already paid for my online edition they gave me a free download. Your instructions worked perfectly. Now I wonder why there is this disconnect between the online version and the downloadable version. Thank you. I will be sending them along this information you have uncovered.
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