Properly Reporting After-Tax to Roth
Hello-
Client made the following transactions in 2019:
1. Rollover from qualified plan (with both after tax and pre tax money). Check sent to their address. Attached a letter of instruction when forwarding the check to the custodian that said to put pre-tax in traditional IRA and after-tax in Roth. How is this recorded on the tax return? Right now it only shows on line 4c of the 1040 (Pensions and annuities) but not 4d (taxable amount). Does anything special need to be done since part went to the Traditional IRA and part to the Roth?
2. Distribution of after-tax assets from a qualified plan (same plan actually as above – this amount had to be treated separate as it was from a certain date) to their personal bank account. Made into an indirect rollover to Roth IRA as they deposited the funds in their Roth IRA. How is this recorded on the tax return? Right now it only shows on line 4c of the 1040 (Pensions and annuities) but not 4d (taxable amount). Does anything special need to be done since it was rolled as an indirect rollover to the Roth?
Thank you so much!
Permalink Submitted by Alan - IRA critic on Mon, 2020-06-01 23:34
What do the 1099R form or forms indicate? It’s not clear whether the first distribution included withholding and was a distribution to client, or a direct rollover check made payable to the IRA custodian that included a supplemental breakdown of the pre tax and after tax amount (1099R code G). Please clarify further.
Permalink Submitted by IRAQuestion5 on Tue, 2020-06-02 13:52
There was no withholding. The first check was a direct rollover check made payable to the IRA custodian. I am not sure if a breakdown of pre-tax or after-tax was provided with the check but it was provided over the phone to the client and they included a letter of instruction with the check when they sent it on to the custodian. I don’t have access to the 1099 currently but will confirm it was 1099R code G for the first check.
Permalink Submitted by Alan - IRA critic on Tue, 2020-06-02 14:49
This type of direct rollover check can cause problems in execution, although they are permitted. As long as the breakdown is correct, and only the after tax amount is rolled into the Roth IRA, the total distributed amount from both checks goes on 4c and 4d would show 0 with “rollover” entered next to 4d. It should be verified immediately after the rollover that the correct amounts were deposited into each IRA account.
Permalink Submitted by IRAQuestion5 on Tue, 2020-06-02 15:06
Okay, thank you for your help! This treatment applies to the indirect rollover as well? How would the IRS know this amount was rolled into the Roth or do they not need to know? I imagine that check was on a separate 1099 with the code 7. Thank you!