Indirect Rollover - Mandatory Taxes and Reporting Question

Submitted by Pamela Shaw on Fri, 2025-02-21 20:00

I did an indirect rollover from a “rollover IRA” from a former employer into my current employer’s 401k plan. Morgan Stanley was very difficult to work with, and an indirect rollover was my only option.

I had no taxes withheld in this transaction, as it was an IRA (pre-tax) going into a pre-tax 401k account. The check received was the full amount of the account, and was deposited within the 60 day window.

Morgan Stanley sent me a 1099-R form that no taxes were withheld, and I’m aware that I need to note this information in my return, check the “rollover” box, etc.

What are the implications with this transaction, given that this was an indirect rollover from one pre-tax account to another where the “mandatory taxes” were not withheld?

When I initially discussed this with an accountant they said it would not be an issue, but now I’m concerned.

Is there anything I should be aware of going forward with filing for this transaction?

Thanks for any/all help you can provide with this.

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Permalink Submitted by Alan - IRA critic on Fri, 2025-02-21 21:28

There are no mandatory taxes for an IRA distribution, although you must have indicated that you were declining withholding. If you did nothing, 10% is the default rate. Since you completed the 60 day rollover the distribution will not be taxable.

Line 4a should show the gross amount on the 1099R with 4b blank and “rollover” entered next to 4b. This also requires an explanatory statement with your return. 401k plans do not issue 5498 forms, so the IRS needs the explanation to help confirm that you actually completed the rollover. In rare cases, they might ask for documentation, such as a copy of the 401k statement showing the rollover.

This does NOT count toward the one rollover per 12 months limitation.