401K rollover containing both pretax and after tax money to Trad IRA and Roth

Forum|Forum|2 years ago
March 18, 2024
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Hi, Some years ago, I put some after-tax money into a traditional 401K and I decided to roll that over to my Roth IRA this year. Administrator could not distribute just the after-tax contributions - they had to distribute the untaxed growth as well. I received one itemized check and deposited the after tax contributions in my Roth IRA and the untaxed growth into my Traditional IRA, specifically so as to avoid paying tax on the distribution. I received one 1099, showing the gross distribution and the portion that was the (after-tax) employee contribution.

The TT tax questionnaire asks me if I rolled the distribution into a Roth IRA yes/no. There is no option to indicate that it went to two different sorts of accounts. The chatbot tells me to enter the two amounts on separate 1099's, but I only received ONE 1099 and I don't think I should enter different numbers and make up a new form.

How do I proceed?

TurboTax Premier Online

Best answer by DanaB27

You will have to split Form 1099-R into two separate Forms for TurboTax to handle this situation. One for the rollover to the traditional IRA and one for the conversion. As long as the total and distributions codes match entering it like this will not cause a problem.

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Enter the first 1099-R for the rollover into the traditional IRA.
On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
On the "Did you move the money to a Roth IRA?" screen answer "No"
Enter a second 1099-R for the conversion to Roth IRA.
On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
On the "Did you move the money to a Roth IRA?" screen answer "Yes"

jtax

Employee

I'm not sure you can do what you want a do. I think you need to seek the advice of a CPA, enrolled agent, or tax attorney who does complicated retirement planning (not just filing ordinary 1040s).

The normal ("pro-rata") rule is that you cannot take out just after-tax contributions from non-Roth plans. Typically each dollar that comes out will be partially after-tax and partially pre-tax. (based on the 12/31 value of all similar plans: total after-tax contributions ("basis") / total FMV. Usually a very small %.) That is not what most people expect.

See for example the "How do rollovers from other retirement accounts (e.g., 401(k)s from previous employers) into an IRA affect the Pro-Rata Rule calculations and the strategy for Backdoor or Mega Backdoor Roth conversions?" from this article from a company with CPAs offering to help in this type of situation. I have no affiliation with them and cannot vouch for them. I just found this article with a quick search.

https://rgwealth.com/insights/how-to-avoid-the-pro-rata-rule-with-backdoor-and-mega-roth-conversions/

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DanaB27Answer

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Enter the first 1099-R for the rollover into the traditional IRA.
On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
On the "Did you move the money to a Roth IRA?" screen answer "No"
Enter a second 1099-R for the conversion to Roth IRA.
On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
On the "Did you move the money to a Roth IRA?" screen answer "Yes"

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RMD20201

@DanaB27: Could I get some clarification on your response?

Enter the first 1099-R for the rollover into the traditional IRA. > When I enter the rollover amount into the traditional IRA, is it correct for me to put $0.00 for "Taxable amount" (Box 2a) and Distribution Code = G as on the 1099-R form? I did not see this thread and had posted https://ttlc.intuit.com/community/tax-credits-deductions/discussion/tt-questionnaire-on-1099-r-after-tax-rollover-from-401k-to-roth-ira-portion-and-rollover-ira/01/3312791#M319611 earlier this evening.
If we use the following as an example,

The transaction was an After-Tax Rollover from 401K with the following breakdown:

$900 as non-taxable contributions rolled over to a Roth IRA and
$100 of taxable earnings rolled over to a Rollover Traditional IRA (defer taxes on $100 and any gains/earnings to a future date).

The 1099-R has the following information:

Box 1 (Gross Distribution): $1,000.
Box 2a (Taxable Amount): $0.00.
Box 5 (Employee Contributions / Designated Roth Contributions or Insurance Premiums): $900.
Box 7: Code: G-Direct rollover and rollover contribution
IRA/SEP/SIMPLE box is BLANK.
All other boxes are BLANK.

Would I use the same information for both 1099-R entries in boxes 2a, 7, IRA/SEP/SIMPLE box and all other boxes? If this is correct then,

for the first entry of 1099-R > rollover to traditional IRA > I would enter $100.00 in Box 1 and $0.00 in Box 5.
for the second entry of 1099-R > rollover to Roth IRA > I would enter $900.00 in Box 1 and $900.00 in Box 5.

And since I only have one 1099-R, can I send the same one as long as the 2 entries match the total on Box 1 (Gross distribution) on my 1099-R? Or, do I have to check "Corrected 1099-R" and fill out another form?

Thank you!

DanaB27

Yes, this is correct:

for the first entry of 1099-R > rollover to traditional IRA > you would enter $100.00 in Box 1, $0 in box 2a, and $0.00 in Box 5. Select code G.
for the second entry of 1099-R > rollover to Roth IRA > you would enter $900.00 in Box 1, $0 in box 2a, and $900.00 in Box 5. Select code G.

No, you don't select corrected 1099-R. As long as the total and distributions codes match entering it like this will not cause a problem.

@RMD20201

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