WARNING! Turbo Tax not handling Backdoor Roth

[furwut]

I just finished my 2012 taxes using the online version of Turbo Tax. I used the backdoor Roth technique in 2012 and as part of that I rolled over the pre-tax amounts from my traditional IRA into my 401k plan. This rollover into a qualified plan is not taxable. I received a 1099-R stating the amount of the rollover with the Box 7 Code of G.

But when I entered this information into Turbo Tax it went flakely . For a long while it treated the amount as taxable and indicated I owed $80,000!. But by the time I finished the return it correctly showed it as non-taxable and that I would receive a $2000 refund. I checked the forms several times to make sure it was correct.

But when I filed the program suddenly flipped back to treating the rollover as taxable!!!!! Now the IRS is expecting me to pay $80,000 .

Searching their online help brings up an acknowledgement of a bug: http://turbotax.intuit.com/support/iq/Retirement-Plan---Social-Security/1099-R---Incorrect-calculations-for-Roth-Conversions-with-Code-G/SLN66002.html?_requestid=58386

If you are using the desktop version and catch the error in time you can fix it. You are apparently screwed if you, like me, are using the online version. Since I've already filed I guess I have to wait until the software is fixed (they say a fix is schedule for 2/28/13) and file an amended return - correct?

[Alan S.]

The bug described in your link is a different situation than yours, as you did not do a direct Roth rollover from a 401k plan.

Perhaps there is a different bug for what you did or you make an input error. It's correct that you will have to amend the return on paper now to report a non taxable rollover on line 15. Note that there have been cases where the IRS does not trust that the rollover occurred because the plan does not issue a 5498 reporting receipt of the IRA money. SInce you are amending on paper anyway, you should include copies of the statements showing the IRA distribution and from the plan showing receipt of the rollover money. That should head off any futher questions from the IRS.

In working with the program from here, check the "view or print" option so you can see all the forms and particularly Form 1040. It should show "rollover" next to line 15b and nothing taxable on 15b.

[EmergDoc]

Turbotax has handled my backdoor Roth fine the last couple of years. Sure you're doing it right? TFB has a tutorial on it.

[furwut]

The program was behaving strangely - alternately recognizing then not recognizing the rollover. I was worried about it so right before I filed I thoroughly reviewed all the figures. At that point Turbo tax showed me receiving a $2000 refund and the rollover as not taxed. After I filed it even asked where I wanted my refund deposited and did I want to purchase and I-bonds with the refund.

But when I downloaded the return to save I found that it had changed my rollover back to taxable. So at this point I'm not sure what actually got transmitted to the IRS.

[furwut]

UPDATE.
I went back into Turbo Tax and started the process to amend the return. I reviewed the 1099-R rollover in Turbo Tax carefully against the paper form I had received from Vanguard. This time I noticed that the paper form had 0.00 for the Box 2a taxable amount while in the program I had just a blank entry. The 1099-R data in the program had come from importing from Vanguard. I did not enter/change that data.

The good news is that entering 0.00 as the taxable amount has restored the rollover to non-taxed status. Yay!

What I don't understand is why the program behaved so schizophrenically the first time. If it had consistently held the rollover as taxable I would have eventually found and corrected the missing Box 2a entry.

Moral of the Story: Even if you are lazy and import data VERIFY, VERIFY, VERIFY!

Now I have to finish and mail an amended return.

[stan1]

My first thought from what you described was a data entry (or data download) problem. 1099-Rs are incredibly obtuse, with many special codes, characters, and check boxes that have to be perfect. Glad you were able to figure it out.

One other tip to reduce risk of problems: I usually wait until late March to file since all of the tax software vendors keep pushing software updates well into March. Just seems safer that way.

[grabiner]

UPDATE.
I went back into Turbo Tax and started the process to amend the return. I reviewed the 1099-R rollover in Turbo Tax carefully against the paper form I had received from Vanguard. This time I noticed that the paper form had 0.00 for the Box 2a taxable amount while in the program I had just a blank entry. The 1099-R data in the program had come from importing from Vanguard. I did not enter/change that data.

The good news is that entering 0.00 as the taxable amount has restored the rollover to non-taxed status.

There have been many reported bugs with TurboTax treating zeros differently from blanks. My 1099-DIV from Total Stock Market (imported from Vanguard) had $0.00 in foreign tax withheld, and TurboTax refused to process my Form 1116 (foreign tax credit) until I told it which country the $0.00 was withheld by. When I replaced the $0.00 by a blank, Form 1116 only asked about my international funds.

[daw007]

Turbotax has handled my backdoor Roth fine the last couple of years. Sure you're doing it right? TFB has a tutorial on it.

Nice! I wanted a step-by-step guide. Posting the link for the lazy so they won't have to google:

http://thefinancebuff.com/the-backdoor- ... ow-to.html

[mhc]

My first thought from what you described was a data entry (or data download) problem. 1099-Rs are incredibly obtuse, with many special codes, characters, and check boxes that have to be perfect. Glad you were able to figure it out.

One other tip to reduce risk of problems: I usually wait until late March to file since all of the tax software vendors keep pushing software updates well into March. Just seems safer that way.

This is a good idea for the above mentioned reason and it also gives more time to see if a broker will send you an updated 1099. Last year I filed a couple days before the deadline and received an updated 1099 the next day.