401k pre-tax funds incorrectly deposited into roth IRA via rollover.
First post here, hoping to get some advice.
In January 2021 I left my previous employer and since I didn’t have a new 401k established at my incoming job, I asked my 401k provider to initiate a rollover to my accounts at Chase. My 401k consisted of both pre-tax and Roth funds, but I only had an IRA Roth account at Chase at the time.
Long story short, despite me asking Chase to facilitate a conversion of the pre-tax funds so they could go into my Roth IRA, Chase deposited both amounts directly into the Roth IRA (rather than opening up a traditional IRA then doing the conversion). It is only now while preparing my tax return that I realize they have done this incorrectly, and again “long story short”, they are refusing to accept ownership of the error or help to resolve it, beyond saying the only mitigation I can take is to file an ‘IRA Recharacterization’.
This form looks fairly complicated since the funds have been in positions since they were deposited at the start of last year. I’m also concerned by some statements in the Tax Cuts and Jobs Act (Pub. L. No. 115-97) such as: “The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans”. I’m also concerned some rollover dates may be violated as a result of performing this fix?
I’ve reached out to a few CPAs online but I’m struggling to find any who specializes in this issue just yet. Any suggestions on who/where I can better seek support for this issue would be greatly appreciated! Having read some other posts here, it seems many people had success in getting the equivalent of Chase to be more supportive with this. I was very clear with them that I had 2 checks, 1 being pre-tax funds and 1 being roth, but even after escalating this issue to their executive team, the customer service rep was extremely unsympathetic and rude about the whole situation.
Is there any other recourse I could take, such as a full reversal of the rollover? to possibly see if the IRS would grant an extension on the 60day rollover, and just roll it over now into my newly established 401k?
Thanks in advance
Permalink Submitted by David Mertz on Wed, 2022-03-16 12:49
I think that you meant to say that you wanted only the after-tax (already taxed) funds in the 401(k) to go to the Roth IRA. Unfortunately, absent Chase taking responsibility for the error and making a bookkeeping correction instead of any reportable distributions, nothing can be done to correct the fact that you now have an unanticipated taxable rollover to the Roth IRA. Recharacterization of such a transaction has been impermissible since 2018. Since the rollover was permissible, there is also no option to obtain a return of contribution to be able to do a late rollover to a traditional IRA.
Permalink Submitted by Jonathan Mills on Wed, 2022-03-16 20:13
Thanks for the reply, I’m actually fine with performing a conversion of the pre-tax funds into roth, however, I don’t have any documentation that this took place because it did not follow the process that Chase said they should have done (401k pre-tax into IRA traditional, IRA cto IRA Roth conversion request, funds now in IRA roth). It seems this would have resulted in the documentation I require, however Chase refuse to facilitate this retroactively. To be honest, I’m happy with any outcome of the funds; either ending up i pre or post tax, as long as I can correctly file my taxes this year based on their final resting place. Unfortunately with Chase refusing to help, my H&R block representative isn’t really sure what needs to happen. Is it possible to simply reverse the contribution completely and work with the IRS to wave the rollover 60 day period? Alternatively, can I fully resolve this in my tax return, paying the tax for a ‘conversion’ without Chase actually helping? since the funds are already technically in the roth, It’s just they didnt report it themselves (and the 1099 from the original 401k indicated they were being rolled over into a traditional destination).
Permalink Submitted by William Tuttle on Wed, 2022-03-16 20:24
I have changed my “Subject”, because it is likely you have misunderstood what Chase has been telling you.
For the last 15 years, a taxable rollover from a pre-tax retirement plan to a Roth IRA has been allowed without going thru a traditional IRA.
You should have received a 1099-R from Chase.
You will report the full amount of the rollover of both accounts on Form 1040 Line 5a and the taxable amount of the traditional (pre-tax) account on Line 5b.
Again Chase is correct. There is absolutely no problem here. All you need to do is properly file your tax return.
Permalink Submitted by Jonathan Mills on Wed, 2022-03-16 20:27
Chase is refusing to provide me with any documents for this transaction, and when I escalated to their executive branch, the reply I got was (and I quote): “We are not changing your tax docs. We didn’t make a mistake and the IRS requires us to report the transaction. As this has been expressed to you several times we will no longer respond to inquiries regarding this matter. We appreciate your business ” Edit: I appreciate you taking the time to help, if they are correct, I’d like to better understand what I need to do, because H&R block don’t know. To clarify a little further, the JPMorgan Expert told me that what they need to do is a recharacterization of the funds into a IRA Traditional, then do a Conversion. There is a specific form that Chase have for that, and I believe it is that form which would have provisioned me a 1099-R for that conversion. Am I able to file my taxes by calculating it myself, or is the 1099-R required? because as I shared above, they are not providing me with one. Also, a reminder that the 1099 from the 401k provider states that it was not going to a conversion, but a traditional>traditional rollover. Again, I appreciate the help
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-16 21:26
If you were agreeable to a conversion of pre tax 401k funds to your Roth IRA, there is no problem with those funds going directly into your Roth IRA at Chase, along with the Roth 401k funds. There was no need for the pre tax funds to first be rolled into a TIRA account. Following these rollovers, you should have received 2 1099R forms from the 401k plan, one coded G for the pre tax funds, and showing the taxable amount in Box 2a. The other already Roth funds directly rolled to your Roth IRA should have generated an H coded 1099R, with no taxable amount in Box 2a. These two 1099R forms should be easy to enter into your tax program, with the total dollars showing on line 5a and the taxable amount on line 5b with “rollover” showing next to 5b. Again, as long as you intended to convert the pre tax dollars anyway, that has already been done as long as the 1099R Forms conform with what I posted.
Permalink Submitted by Jonathan Mills on Wed, 2022-03-16 21:59
Thank you spiritrider and Alan-iracritic,I currently have 2 1099-Rs both from the 401k company, the traditional funds are coded ‘G’ and the roth funds coded ‘BG’. The 1099-R for the pre-tax is unfortunately showing $0.00 in field 2a, because they believed I was rolling it into a traditional IRA. I would be very satisfied keeping all the funds in the Roth IRA and just paying the conversion taxes – am I understanding correctly that this might be doable if the 401k company are able to re-generate my 1099-R for the pre-tax funds, but this time putting the full amount into 2a? Do I need the corrected 1099-R, or can I just file my taxes reflecting that? lol… Thank you so much again, I feel like there might be a clean way forward in sight
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-16 23:03
Well, you need to contact the 401k administrator anyway because code BG is incorrect for a direct rollover to a Roth IRA. The correct code is H. And the G coded 1099R should include the taxable amount in Box 2a. Tell the plan that the rollover from the pre tax 401k per the 1099R Inst should be that of a “qualified rollover contributionas defined in Sec 408A(e). But to play it safe, first check with your Chase Roth IRA to be totally sure that the entire Box 1 amount of these 1099Rs actually went into your Roth IRA.
It’s not clear how responsive the 401k plan will be to your request. It could come down to your making a choice of filing an extension of your return by 4/18 or messing with substitute 1099R forms if the plan does not respond quickly enough. These 1099R errors suggest that the plan administrator is not of the large and professional type.