When you do a direct rollover from the pre-tax account in a workplace retirement plan to a Traditional IRA, you’ll get a 1099-R form after the end of the year that shows the rollover isn’t taxable. When you do a rollover from the pre-tax account to a Roth account, you’ll get a 1099-R form after the end of the year that shows a taxable amount.
Both of these 1099-R forms are straightforward. It’s either taxable or not taxable. You enter the 1099-R form in your tax software and tell it whether the rollover went to a Traditional account or a Roth account.
Combined 1099-R for Mixed Rollovers
When you do a mix of two or more rollovers in the same year — one to Traditional and one to Roth — your plan administrator may issue a combined 1099-R form for both rollovers. The combined 1099-R form shows that only a portion of your rollovers is taxable.
Example: Suppose you rolled over $30,000 to a Traditional IRA and $20,000 to a Roth account from the pre-tax account in your workplace retirement plan. You may get a 1099-R form that looks like this:
Box 1 Gross Distribution | $50,000 |
Box 2a Taxable Amount | $20,000 |
Box 2b Taxable amount not determined | not checked |
Box 5 Employee contributions/Designated Roth contributions or insurance premiums | $0 |
Box 7 Distribution code(s) | G |
Box 7 IRA/SEP/SIMPLE checkbox | not checked |
This 1099-R form is correct. It shows that a total of $50,000 came out of the plan. $20,000 is taxable because it went into a Roth account and the other $30,000 isn’t taxable because it was rolled over to a Traditional IRA.
Split 1099-R Form for Tax Software
Tax software such as TurboTax, H&R Block, or FreeTaxUSA sometimes has difficulty in dealing with a combined 1099-R form like this. The software asks you whether the money went to a Roth account. If you answer “Yes” it treats the entire $50,000 as taxable. If you answer “No” it treats the entire $50,000 as not taxable.
The software assumes that a rollover went into either a Traditional IRA or a Roth account but not both on the same 1099-R form. The trick to deal with this deficiency in the tax software is to split the combined 1099-R form into two — one for the rollover to the Traditional IRA and another for the rollover to the Roth account.
If you imported the combined 1099-R form, delete it and enter two 1099-R forms manually. Use the same payer name, address, and tax ID for both 1099-R forms.
You enter this 1099-R form for the rollover to a Traditional IRA:
Box 1 Gross Distribution | $30,000 |
Box 2a Taxable Amount | $0 |
Box 2b Taxable amount not determined | not checked |
Box 5 Employee contributions/Designated Roth contributions or insurance premiums | $0 |
Box 7 Distribution code(s) | G |
Box 7 IRA/SEP/SIMPLE checkbox | not checked |
You tell the software that this rollover went to a Traditional IRA. The software will make it not taxable.
Then you enter another 1099-R form for the rollover to a Roth account:
Box 1 Gross Distribution | $20,000 |
Box 2a Taxable Amount | $20,000 |
Box 2b Taxable amount not determined | not checked |
Box 5 Employee contributions/Designated Roth contributions or insurance premiums | $0 |
Box 7 Distribution code(s) | G |
Box 7 IRA/SEP/SIMPLE checkbox | not checked |
You tell the software that this rollover went to a Roth account. The software will make it taxable.
If your combined 1099-R form has a positive number in Box 5 because you made non-Roth after-tax contributions (“mega backdoor Roth“), include it on the applicable 1099-R form depending on whether the non-Roth after-tax contributions were rolled over to a Traditional IRA or a Roth account.
The two manually split 1099-R forms added together have the same numbers as the original combined 1099-R form. You’re splitting it only because the tax software isn’t smart enough to handle the combined 1099-R. The numbers are combined again on your 1040 tax form. It will show that you’re paying tax on only the portion that you rolled over from a pre-tax account to a Roth account.
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Brendon says
could one use a similar technique for a single 1099-misc that combines amounts applicable to two separate schedule E rental properties? this is a case that also confuses my tax software (TurboTax) in a similar manner.
Harry Sit says
Yes. When one form covers two things and the software can deal with only one, you can split the form into two to make the software work.