MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
teaman
Posts: 88
Joined: Sat Apr 18, 2020 2:15 pm

MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by teaman »

I did a MBDR in 2020. My 401k provider issued a 1099-R for the In-plan Roth Rollover (i.e; from an After-Tax 401k to a Designated Roth account within the employer's plan, Box 7 has a distribution code "G"), and another 1099-R for the distribution from the Designated Roth account to a external Roth IRA (Box 7 has a distribution code "H") account.

In the 1099-R for the IRR (code "G"), I see the following entries:

Box 2 (Taxable amount) = $5 (which is expected and correct)
Box 14 (State tax withheld) = 0
Box 16 (State Distribution) = $5.
Box 19 (Local Distribution) = 0

Per the 1099-R instructions,
Boxes 14-19. If state/local income tax was withheld from this distribution, boxes 16 and 19 may show the part of the distribution subject to state and/or local tax.

I live in a state that has no income tax, so I don't understand why Box 16 shows $5 (since Box 14 is 0, I expected Box 16 to be 0 too, per the instructions). When I called the provider and asked why is this box not zero, they said Box 2 and Box 16 should match and the form is correct, and as long as Box 14 is zero I should be good. They've also asked me to check with my tax preparer if I have more questions and the provider would not be able to help me further.

The 1099-R issued for the Roth IRA distribution (code "H") does have $0 in Box 16, though.

Can someone let me know if this makes sense? Can Box 16 be non-zero in the 1099-R for IRR?

Thanks
User avatar
tfb
Posts: 8397
Joined: Mon Feb 19, 2007 5:46 pm

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by tfb »

teaman wrote: Thu May 13, 2021 10:49 am I live in a state that has no income tax, so I don't understand why Box 16 shows $5
The provider is just saying this $5 is taxable income at the state level, which is true. If your state has no income tax, $5 taxable at a zero rate is still zero.
Harry Sit has left the forums.
Topic Author
teaman
Posts: 88
Joined: Sat Apr 18, 2020 2:15 pm

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by teaman »

tfb wrote: Thu May 13, 2021 10:53 am
teaman wrote: Thu May 13, 2021 10:49 am I live in a state that has no income tax, so I don't understand why Box 16 shows $5
The provider is just saying this $5 is taxable income at the state level, which is true. If your state has no income tax, $5 taxable at a zero rate is still zero.
Could be, but this really confusing. The instructions clearly state:

Boxes 14-19. If state/local income tax was withheld from this distribution, boxes 16 and 19 may show the part of the distribution subject to state and/or local tax.


so per the above statement, if state income tax was not withheld in the first place (i.e; box 14 is 0), box 16 should be empty, correct, since there's NO distribution that's subject to state/local tax?
User avatar
tfb
Posts: 8397
Joined: Mon Feb 19, 2007 5:46 pm

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by tfb »

teaman wrote: Thu May 13, 2021 11:01 am so per the above statement, if state income tax was not withheld in the first place (i.e; box 14 is 0), box 16 should be empty, correct, since there's NO distribution that's subject to state/local tax?
It doesn't say that. If state tax wasn't withheld, the distribution can still be subject to state tax. If A then B doesn't say if not A then not B. It's silent on what happens when not A.
Harry Sit has left the forums.
Katietsu
Posts: 4974
Joined: Sun Sep 22, 2013 1:48 am

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by Katietsu »

The people who issue the 1099-R are not your tax advisor.

They are not making a statement about your requirement to pay state tax. They are not interpreting the law in each of the 50 states. Given that your state does not even have income tax, I am not sure what your concern is with regards to a possible negative consequence to you.

The instructions that you quote do not say that the amount in box 16 are taxable.

If I did the IRR, I would use the information in box 16 for my state taxes because in my state, that amount would be taxable. Therefore, the provider needs to furnish that information and I need to decide what to do with it. In your case, you live in a state with no income tax. So your decision as to what to do with the box 16 information will be to do nothing with it. It is not relevant to you. But it is not the provider’s job to make those decisions for you and for me.
Topic Author
teaman
Posts: 88
Joined: Sat Apr 18, 2020 2:15 pm

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by teaman »

tfb wrote: Thu May 13, 2021 11:43 am
teaman wrote: Thu May 13, 2021 11:01 am so per the above statement, if state income tax was not withheld in the first place (i.e; box 14 is 0), box 16 should be empty, correct, since there's NO distribution that's subject to state/local tax?
It doesn't say that. If state tax wasn't withheld, the distribution can still be subject to state tax. If A then B doesn't say if not A then not B. It's silent on what happens when not A.
Good point. Agreed. I think the instructions could have been clearer.
Topic Author
teaman
Posts: 88
Joined: Sat Apr 18, 2020 2:15 pm

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by teaman »

Katietsu wrote: Thu May 13, 2021 12:03 pm If I did the IRR, I would use the information in box 16 for my state taxes because in my state, that amount would be taxable. Therefore, the provider needs to furnish that information and I need to decide what to do with it. In your case, you live in a state with no income tax. So your decision as to what to do with the box 16 information will be to do nothing with it. It is not relevant to you. But it is not the provider’s job to make those decisions for you and for me.
I respectfully disagree with the above statement. If the provider needs to furnish the information and I need to decide what to do with it, then I wonder why would not all providers do that
Eg:

1. 1099-R issued by another provider (for my Backdoor Roth) does not list anything in Box 16 (State distribution) though there was some taxable amount accrued during TIRA to RIRA conversion.
2. Also, my W-2 does not have anything in Box 16 (State wages, tips etc.) since I live in a no income tax state, but I know someone who works in another state (that has income tax) for the same employer who has an entry in Box 16 which made sense.

So, if the onus is on me to determine what to do with State Distribution/State wages, I wonder why would this other IRA provider and my employer not follow the same policy as my 401k provider.
Katietsu
Posts: 4974
Joined: Sun Sep 22, 2013 1:48 am

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by Katietsu »

teaman wrote: Thu May 13, 2021 2:16 pm
Katietsu wrote: Thu May 13, 2021 12:03 pm If I did the IRR, I would use the information in box 16 for my state taxes because in my state, that amount would be taxable. Therefore, the provider needs to furnish that information and I need to decide what to do with it. In your case, you live in a state with no income tax. So your decision as to what to do with the box 16 information will be to do nothing with it. It is not relevant to you. But it is not the provider’s job to make those decisions for you and for me.
I respectfully disagree with the above statement. If the provider needs to furnish the information and I need to decide what to do with it, then I wonder why would not all providers do that
Eg:

1. 1099-R issued by another provider (for my Backdoor Roth) does not list anything in Box 16 (State distribution) though there was some taxable amount accrued during TIRA to RIRA conversion.
2. Also, my W-2 does not have anything in Box 16 (State wages, tips etc.) since I live in a no income tax state, but I know someone who works in another state (that has income tax) for the same employer who has an entry in Box 16 which made sense.

So, if the onus is on me to determine what to do with State Distribution/State wages, I wonder why would this other IRA provider and my employer not follow the same policy as my 401k provider.
The people who issued the 1099-R for the back door Roth would have also left box 16 blank if they issued the 1099-R to me. And I would have had to know that I needed to report the earnings to my state because my state taxed them. The fact that the way that provider did it worked for you was just coincidence. They would have left it blank for me too, so then should I complain about them? Actually, for this 1099-R, the box for taxable amount not determined is probably checked off. So, in this case, some providers will leave box 2a empty, some will put a zero there, some will put the same amount as box 1. The number in box 2a means nothing as far as taxable income if 2b is checked.

The state distribution on W-2’s are usually more accurate. But when a small employer operates in State A with most employees as a existent of state A, then the W-2 for an employee of state B can have the wrong amount in the state distribution. If you speak to one of these employers, they may tell you that they are under no obligation to correct it or to withhold for an outside state.

Note that I am not giving an opinion on what should be done or what should be required. I am just explaining what is done and what is required.
Topic Author
teaman
Posts: 88
Joined: Sat Apr 18, 2020 2:15 pm

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by teaman »

Katietsu wrote: Thu May 13, 2021 12:03 pm The people who issued the 1099-R for the back door Roth would have also left box 16 blank if they issued the 1099-R to me. And I would have had to know that I needed to report the earnings to my state because my state taxed them.
Well, in that case, what's the point of issuing a tax form if the provider can fill it as they wish and expect the customer to "know" what to do with unreported entries?

Anyway, I do not wish to argue over this. I just think that reporting should be uniform, but again, I understand that the IRS instructions are intentionally unclear/convoluted in many cases.
Katietsu
Posts: 4974
Joined: Sun Sep 22, 2013 1:48 am

Re: MBDR: 1099-R for In-plan Roth Rollover -- State Distribution entry question

Post by Katietsu »

teaman wrote: Thu May 13, 2021 9:49 pm
Anyway, I do not wish to argue over this. I just think that reporting should be uniform, but again, I understand that the IRS instructions are intentionally unclear/convoluted in many cases.
I am not disagreeing with you. The purpose of my response is just so that you do not incorrectly complete your tax return in the future. It is not uncommon for people to end up either overpaying or getting a tax bill complete with a penalty because they did not understand how that the amounts in box 2a and box 16 might need additional attention.
Post Reply