If you moved money from one IRA to another—whether through a direct or indirect rollover—you must report the transaction on your federal tax return, even if it’s not taxable. Here’s how to do it correctly.
What Is an IRA Rollover?
An IRA rollover occurs when you withdraw funds from one retirement account and deposit them into another eligible retirement account within 60 days. There are two types:
- Direct Rollover: The funds are transferred directly between financial institutions.
- Indirect Rollover: You receive the funds and then deposit them into another account yourself.
Reporting a Rollover Using Form 1099-R
You’ll receive a Form 1099-R from the financial institution that issued the distribution. This form must be reported on your tax return, even if the entire amount was rolled over.
Key Boxes on Form 1099-R:
- Box 1: Total amount distributed
- Box 2a: Taxable amount (may be blank)
- Box 4: Federal income tax withheld
- Box 7: Distribution code (e.g., Code G for direct rollover)
How to Report the Rollover
If You Rolled Over the Full Amount (Including Withheld Taxes)
If taxes were withheld but you replaced them with your own funds to complete a full rollover:
- Report the full amount from Box 1 as the distribution.
- Enter $0 as the taxable amount (Box 2a).
- Indicate that the full amount was rolled over by checking the box that reads "Check here if all/part of the distribution was rolled over," and entering the rollover amount.
- Report any federal or state tax withheld.
💡 This ensures the IRS sees the full rollover and that no part of it is taxable.
If You Did Not Replace Withheld Taxes
If you only rolled over the net amount (after taxes were withheld), the withheld portion is considered a distribution and is taxable:
- Report the full amount from Box 1.
- Enter the amount not rolled over (i.e., the withheld taxes) as the taxable amount (Box 2a).
- Indicate the amount that was actually rolled over by checking the box that reads "Check here if all/part of the distribution was rolled over," and entering the rollover amount.
- Report any federal or state tax withheld.
💡 Only the portion not rolled over is subject to income tax and possibly an early withdrawal penalty.
Program Entry
- Navigate to the Federal section
- Income (Select my forms)
- 1099-R, RRB, SSA
- Add or Edit a 1099-R
- Enter the information from your 1099-R while following the instructions above
- Confirm the taxable portion and withheld taxes.
Final Notes
- You can only do one indirect IRA rollover per 12-month period.
- There is no limit on the number of direct rollovers you can make.
- Rollovers must be completed within 60 days to avoid taxes and penalties.
- Keep all documentation in case the IRS requests proof.