I am using TaxAct for the first time to do DS’ taxes because he gets free efiling to Federal, MA and RI due to low income. In 2021, he left a previous employer and rolled his Roth 401(k) over to his Roth IRA with the employer match portion going to a Rollover Traditional IRA. This transaction is not a taxable event since the money stayed in appropriate accounts. TaxAct asks how much of the total distribution was rolled over, and so I put in the total amount because that’s what he did. But then there is a follow-up question asking how much was rolled over (I put the full amount there), and then a checkbox asking if this is a rollover from a Roth to a Roth. I want to check that because most of it was Roth 401(k) to Roth, but that seems wrong since a portion was actually rolled to a TIRA. Does it matter here? I’m at a loss as to how to show these are separate transactions, though all non-taxable.
Interestingly, there is about 15% of his rollover that is showing in Box 2a Taxable Amount, and it matches Box 16 State Distribution, which I do not understand at all. I do plan to get on the phone with DS and call to ask about this.
So can anyone help with my question? Will it break anything if I check off the Roth to Roth box?
Try it then verify how the actual tax forms are filled in. It should ask follow up questions such as how much was a ROTH to ROTH rollover and was any tax basis in the non-ROTH 401K rollover. Company match is pretax and that maybe the amount that is reported as potentially taxable.
An 8606 would need to be created if there was any tax basis in the non-ROTH rollover.
It isn’t unusual for an amount to be entered in taxable portion. It doesn’t mean that the amount is unconditionally taxable. The box for taxable amount not determined maybe also checked. Forms for both for the distribution and the deposit will be sent directly to the IRS by the involved companies.
Does the amount that is reported as potentially taxable match the amount that was rolled over to the IRA?
If Taxact isn’t able to handle the combined ROTH and pre-tax IRA rollover, just split the entering of the transaction into two separate transactions. It should be able to handle it as one. It isn’t that unusual of a transaction.
Try it then verify how the actual tax forms are filled in. It should ask follow up questions such as how much was a ROTH to ROTH rollover and was any tax basis in the non-ROTH 401K rollover. Company match is pretax and that maybe the amount that is reported as potentially taxable.
OK. I will try that.
An 8606 would need to be created if there was any tax basis in the non-ROTH rollover.
There is no tax basis in the non-Roth rollover as that is all pre-tax employer contributions and all went into the Traditional IRA. That money was converted to a Roth purposely in 2022 to avoid increasing his income in 2021 as he also had subsidized healthcare, and I didn’t want him to have to pay more of it back due to the conversion. He now has employer-paid healthcare, so that problem went away.
Does the amount that is reported as potentially taxable match the amount that was rolled over to the IRA?
No. The taxable amount in Box 2a matches the state taxable amount, but does not correlate at all to anything else. I’m hoping a call to the Plan Administrator will shed some light on that. Hoping to do that tonight if DS is available.
Suggestion: SAVE your current version of the return with a new name, and then work on the newly created version. That way you can “experiment” all day to see what comes next. And you haven’t mucked up the “actual” return.