Thank you for this tip! Is there anything special I need to enter in my software for the supplemental annuity, or do I just add it as additional taxable income from the pension?

You should enter it as additional taxable pension income, but make sure you're not applying the simplified method calculation to this portion. Most tax software has separate entry fields for fully taxable pension income versus partially taxable amounts that need the simplified method. Just be careful not to mix them together.

I've had several clients like this. You need to treat each pension separately. The railroad benefits follow RRB rules with the Tier 1/Tier 2 distinction, while the private company pension follows regular IRS rules for qualified plans. You'll have both an RRB-1099 and a regular 1099-R. Don't combine them when doing the simplified method calculations.

Thank you for mentioning this! I've actually had my Roth since 2018, so it's been over 5 years. And I've never done any conversions - all of my contributions were direct to the Roth IRA. Based on what everyone is saying, it really sounds like Fidelity just coded the 1099-R incorrectly. I'll contact them tomorrow to request a corrected form with the right distribution code. In the meantime, I'll fill out Form 8606 Part III to document that these were contribution withdrawals and therefore not taxable. This has been super helpful!

Glad to hear your account meets the 5-year requirement! That definitely makes things simpler. When you call Fidelity, specifically ask them to issue a corrected 1099-R with distribution code J in Box 7, which indicates an early distribution from a Roth IRA with no known exception. This is the correct code for withdrawal of contributions. Even if they take a while to issue the correction, go ahead and file with Form 8606 as you mentioned. If the IRS questions it, you'll have documentation showing these were return of contributions. Good luck!

Is there any penalty to the financial institution for issuing incorrect 1099s? Seems like they should be more careful since this directly impacts people's taxes!

There's no direct penalty to financial institutions for most 1099 errors unless they're systemic or intentional. The IRS recognizes that mistakes happen, which is why there's a process for issuing corrected forms. However, firms can face penalties for late filing or intentional misreporting. The bigger issue is that most large institutions use automated systems to generate these forms, and special situations like Roth contribution withdrawals often require manual intervention to code correctly. While annoying for customers, it's generally viewed as an administrative error rather than something that would trigger penalties.

Does either software handle the K-1 distributions properly? That's the part that always confuses me with my S-Corp.

Both handle K-1s fine in my experience. TurboTax is a bit more detailed in explaining what each K-1 box means and how it will impact your personal return. TaxAct handles them correctly but with fewer explanations. The key with K-1s in either software is understanding that the income/loss flows through to your personal return. Make sure your S-Corp distributions are properly categorized - this is where people often make mistakes. Neither software will stop you if you're taking distributions that are significantly higher than your reasonable salary, which can be a red flag to the IRS.

I use Drake for my tax preparation business and it's excellent for professionals, but their small business version is not as user-friendly as TurboTax or TaxAct for non-professionals. It's powerful but assumes a higher level of tax knowledge. If your CPA is willing to give you some guidance, it might work well since you'd be using the same platform they use. But if you're completely on your own, I'd stick with TaxAct which strikes a better balance between cost and usability for S-Corp 1120S forms.

Do you think there's a dollar threshold where it becomes worth it? Like if OP is only making $13k from delivery work, maybe the deductions won't add up to enough to justify the professional fees?

There's not a strict dollar threshold - it's more about complexity than income amount. Even with "only" $13k in delivery income, there are potentially thousands in deductions at stake. Mileage alone at 65.5 cents per mile adds up fast for delivery drivers. If you drove 5,000 miles for deliveries, that's over $3,200 in deductions right there. The multi-state situation is another complexity factor regardless of income. Each state has different rules about what income is taxable for part-year residents. A good preparer might find state-specific credits or deductions that software might miss, especially if you don't know to look for them.

Avoid H&R Block for anything complicated. They're fine for super basic returns, but for self-employment and multi-state, you're usually getting someone with minimal training who just plugs info into their software. I made this mistake and they missed several deductions a real CPA later found for me. You're better off with either good software you run yourself or an actual CPA/EA.

This is so true! I was panicking when I saw my 1099-R showing the entire distribution as taxable. I almost paid thousands in unnecessary taxes before realizing I needed to complete Form 8606.

Oh wow, I didn't realize this! Thankfully I don't have any other traditional IRA funds, but this is really important info. Does this also apply if my spouse has traditional IRA funds or are those treated separately?

Good news - your spouse's IRAs are completely separate for pro-rata calculations. The IRS treats each individual's IRA accounts as their own pool, so your backdoor Roth conversion won't be affected by anything your spouse has in their traditional IRAs. That's one of the few areas where the IRS is actually taxpayer-friendly in these calculations! Just make sure you each file your own Form 8606 if you're both doing backdoor Roth conversions.