401k Pre 87 After-Tax Contributions
Last year at age 51 I rolled a 401k from my previous employer to an IRA. There was $5,000 in pre 87 after-tax contributions that Fidelity said could not be rolled over and it was sent to me in a check.
The 1099-R for this $5,000 shows:
Box 1 – Gross Distribution $5,000.00
Box 2a – Taxable Amount $0.00
Box 2b – Total Distribution (box is marked with an X)
Box 3 – Capital gain $0.00
Box 5 – $5,000.00
Box 7 – Distribution Code of “1”
Where do I code this distribution on my Form 1040? Am I responsible for any taxes or penalties? Any advice you could offer would be greatly appreciated.
Permalink Submitted by mk foss on Wed, 2012-03-21 17:00
The distribution is not taxable and Form 1099 informs IRS it is not taxable. It would go on line 16a on page 1 of Form 1040 with a zero in 16b. No penalties are involved in reporting nontaxable income.
Permalink Submitted by Susan Davis on Wed, 2012-03-21 18:21
Great! Thank you so much for clarifying this for me!
Permalink Submitted by Alan Spross on Wed, 2012-03-21 19:03
Actually, you should have rolled this to a Roth IRA, but that cannot be changed now. There still would have been no tax or penalty.
As it stands, the IRS instructions currently indicate that the next time you are otherwise required to file Form 8606, you should include any amount of after tax contributions distributed from a qualified plan to your TIRA account on line 2 of Form 8606. This is what prevents you from being taxed again on this rollover when you take IRA distributions. Form 8606 will pro rate your basis from non deductible contributions and rollovers of after tax amounts to determine the taxable amount of your distributions. So make a note to yourself somewhere to add the 5,000 on line 2 of Form 8606 the next time you are required to file an 8606.
Fidelity did not include the 5,000 in the direct rollover of your pre tax balance because the 1099R reporting provisions are only clear if they pay the after tax amount to you and issue two 1099R forms as they apparently did.