Direct vs. Indirect
Client receives a rollover check to their address made payable to the new custodian. They mail the letter to the new institution and include a letter the client drafts telling the institution to deposit the after-tax money in the Roth account and the pre-tax money in the IRA account. Is that still considered a direct rollover?
Permalink Submitted by Kyle Eaton on Wed, 2019-04-03 21:28
My understanding is that as long as the check is made payable to the custodian FBO the client, it is a direct rollover.
Permalink Submitted by Alan - IRA critic on Thu, 2019-04-04 00:34
Yes, this should be reported as a direct rollover, code G on the 1099R. As such, there should be no withholding on the pre tax portion. Client still needs to report the direct rollover on Form 1040. Also, note that most firms are using a single 1099R to report a split rollover such as this, and that can present challenges entering the data into some tax programs. Client should check ASAP to verify that the correct amounts were deposited into the appropriate IRA types.