after tax gains on 401K
a client distribute 401K rollover to his IRA account and his rollover company cut one check with both pre and after tax. Some of the gains on the after tax money was deposited into the Roth IRA account and should of been deposited to IRA acct and treated as pre tax money. Since the client plans to do some roth conversion before year end it might be better to leave the gains that was deposited into the Roth IRA and count that as taxable income. How should this now be coded?
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-02 22:54
The gains on the after tax (non Roth ) contributions will be taxable, and the only possibility to change the rollover would be in client could prove that the error was all due to the custodians. Other than custodian error he has no choice but to live with the rollover as is. But if client was about to convert other pre tax money to his Roth anyway, all he has to do is reduce those conversions by the amount of taxable gains just rolled into the Roth.
Not sure I understand your coding question. The plan will likely issue a single 1099R coded G with the Box 2a taxable amount showing the amount they thought would be taxable. If this 1099R is incorrect due to 2a being wrong, client will have to report differently and include an explanatory statement with client’s return regarding the difference. 401k administrators that issue a single check for a split rollover invite problems and they typically follow with a single 1099R as well that can cause entry issues with some tax retail tax programs. If client does their own taxes, the entry of this combined 1099R can usually be done by entering it as if there were actually 2 1099R forms, one for the amount that went to the TIRA and the other for the amount that went to the Roth IRA.