Rollover and 1099-R Questions
A Few Questions on Rollovers and 1099-Rs:
Here is the scenario:
Let’s say throughout the 2021 tax year, at different times, ten different 401K Roth in-plan conversions (IRRs) are done (conversions done with after tax contributions + earning on after tax contributions). I am told by the 401K plan administrator that the plan allows 50% of the ROTH (Contributions + in-plan conversions + earnings) can do rolled over to a ROTH IRA.
Questions:
1. Are you allowed to do all these 401K (IRRs) and do an in-service rollover to a ROTH IRA all in the same year. Guess I am wondering if there are any limits the IRS imposed on doing both these things in a given year or given time period and if there are any penalties or other issues? or are the only restrictions one imposed by the plan?
2. Should I expect to get one 1099-R form from the plan administrator for the total 401K (IRRs) and then a separate 1099-R for the in-service rollover to the ROTH IRA. Or is this somehow all aggregated in one 1099-R form though that would seem to make it hard to see what happened with each thing, so I would think they would have to be separate forms?
3. I assume I will receive a 5498 form with rollover contributions for the amounts rolled over from the ROTH 401K to the ROTH IRA, but will I also receive a similar form of some kind showing the 401K (IRR) or does that not have a form showing the conversion/rollover amount the the ROTH 401K sub account other than just the 1099-R?
4. On the 1099-R for the 401K (IRR) taxes will be paid on the after tax earnings that are converted not on contributions. So when the in-service rollover is done to the ROTH IRA I would assume the 1099-R will show no taxes due since the conversion would have been done in the 401K (IRR) and appear on that 1099-R. Is that correct?
5. For the 1099-R pertaining to the in-service rollover to the ROTH IRA would I just add the amount in box 5 of the 1099-R to my existing basis for the ROTH IRA to get the new basis after the rollover?
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-09 23:21
50% limit for rollover to outside Roth IRA is quite rare, usually it is all or nothing, but this limit is enforceable. There is no IRS limit on the number of IRRs or rollouts to Roth IRAs. It is fairly frequent that a plan would limit the number of direct rollovers out of the plan, but I guess the 50% value limit shows that retaining plan assets is more important to the plan than the number of rollouts. In any event, no IRS problems here.
One 1099R coded G for the total of IRRs, and one 1099R coded H for the total of direct rollovers from Roth 401k to Roth IRA.
Form 5498 is only issued for contributions to IRA accounts. There is no equivalent for rollovers to 401k accounts including IRRs to designated Roth accounts. This is evidently due to better compliance and control by plan administrators than IRA owners and custodians due to unlimited numbers of IRA accounts.
Yes, there are never taxes due on a designated Roth to Roth IRA rollover. All amount are already Roth and nothing is being distributed to the participant. Box 2a will be 0, but Box 5 should show the amount of Roth basis being rolled over.
Yes, but check to see if the figure makes sense. Plans make occasional errors. If your Roth 401k was qualified, Box 5 would show the total of the rollover, which would then be treated as Roth IRA regular contribution basis. Oddly, IRR money is not tracked as Roth conversion basis once in the Roth IRA, it is considered regular Roth IRA contribution basis. That does not mean that prior to 59.5, the taxable portion of IRRs (the earnings on after tax contributions) escape the 5 year conversion holding period to avoid penalty, but that would be handled separately on Form 5329 if applicable.
Permalink Submitted by Steven Vitullo on Thu, 2021-12-09 23:59
Great Thanks. That is very helpful. I’d like to ask for more sepcifics on #5 if the plan is not qualified yet as is my case. What should I expect to see for this case.
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-10 00:48
If the Roth 401k is not yet qualified (you are not yet 59.5 or disabled), then Box 5 will show your Roth 401k basis and you would increase your Roth IRA regular contribution basis by that amount. Any earnings included in the rollover would just become Roth IRA earnings that would not be available without tax or penalty until your Roth IRA was held for 5 years and you were 59.5.
Permalink Submitted by Steven Vitullo on Fri, 2021-12-10 03:08
Thanks that is helpful.
Slightly different question. When you have a 401K that has pretax monies and ROTH monies in it. My understanding is that the plan administrator is required to seperate these quantities into essential two seperate sub acount within the 401K. So my question is when you have to take RMDs do you have to calculated RMDs seperately for each of thos sub accounts or in total for both togeter. If both together do you get to decide how much Pretax money and how much roth money is take or does it have to be taking in proportion to the amount of each in the account? I assume this would be the same for a 403B with pretax and roth sub accounts.
I think RMDs are calculated seperately for each workplace savings account (403b, 401k, etc.), you calculate traditional IRA RMDs aggregating all traditional IRAs and you can take the RMDs from any of your accounts as long as you take the total out, and ROTH IRAs have not RMDS. Is that correct?
Are RMDs always done by individual or do joint fillers get to aggregate their accounts to calcualte RMDs?
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-10 03:41
Per IRS Reg 1.401(a)(9)-8 QA 2, in a defined contribution plan containing separate accounts, the RMD can be aggregated between those sub accounts. Therefore, the participant could take their total RMD solely from the pre tax portion or solely from the Roth portion, or any combination in between if desired. If there is also an after tax sub account within the pre tax portion, that would result in up to 3 portions of the account that could be used to aggregate the total RMD. That said, the specific plan document or procedures may not allow what the tax code allows, you would have to check with the plan. I think the TSP for example requires the RMDs to be distributed pro rata.
That’s correct for 401k accounts, as any form of aggregation is not allowed. However, 403b RMDs for multiple 403b accounts can be aggregated, just like IRA RMDs. This makes 403b RMD compliance for plans more challenging because the administrators have no idea whether their RMD has been completed from a different 403b.
Individual – each spouse must complete their own RMD without aggregation between them.