Roth 401k Rollover to TIRA In Error
In 2020, my husband rolled over a Roth 401k. He transferred the employer match to an existing TIRA brokerage account. He opened a Roth IRA with a separate brokerage and transferred the remainder of the Roth 401k to it. The 1099-R for the Roth rollover was coded H and the 1099-R for the employer match was coded G.
He recently discovered the second brokerage account he opened in 2020 was a Rollover IRA not a Roth IRA. The brokerage issued a 5498 for 2020 as a rollover but my husband didn’t notice the IRA box was checked, not the Roth box.
He reached out to the brokerage and they have said it’s his error to fix because he opened a rollover IRA instead of a Roth contributory IRA. The check went directly from the plan to the brokerage, so he doesn’t have a copy to see how the check was issued. If the plan administrator issued it correctly I’m not sure how the brokerage didn’t catch that it was going into a TIRA and not a Roth IRA.
The only other activity in the brokerage account has been earnings on the original rolled over amount. I’m hoping someone might be able to provide some guidance on how we can fix this issue. Thank you in advance for your help.
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-21 03:47
This type of account error is very difficult to resolve, even when brought to the attention of the custodian immediately. Once the 5498 has been issued to the IRS, the custodian becomes even more resistant. And the fact that these two rollover checks were directed to different firms makes it even more difficult to resolve. Brokerages DO have the authority to retitle accounts once documentation is presented that they are incorrect, but many do not wish to even consider documentation at this late date. What would be needed is a dated closing plan statement that shows the balance of the Roth 401k rolled out, and the H coded 1099R in the indentical amount as was rolled into the incorrect TIRA account. The ideal fix is the reconstruct the rollover as it should have been and the custodian to send a corrected 5498. You might try a formal written letter with this documentation. Additional documentation that might help would be copy of the plan’s direct rollover check which SHOULD HAVE been made out to the new custodian FBO husband’s Roth IRA. If that is available it shows some carelessness on the part of the receiving broker.
Plan B is alot more red tape. If the original rollover cannot be reconstructed correctly, it sometimes works to present the brokerage with a RR 2020-46 certification form as outlined in the following link. Reason c) would apply – that your husband thought this rollover had gone into an eligible retirement account. The fact is that a Roth 401k distribution is NOT eligible to be rolled into a non Roth account, and that technically makes the direct rollover into a taxable distribution and an excess TIRA contribution which must be removed to stop annual 6% excise taxes from being levied for the excess contribution. While your husband would owe the 6% excise tax for 2020 and 2021 (if the custodian did not reconstruct per Plan A), the certification form might allow him to do a late rollover, many months after the 60 day deadline to a newly opened Roth IRA account. The custodian does not have to accept such a certification form, but the additional potential red tape of going through that process might make them reconsider the simpler reconstruction request. In any event I suggest you read the following link describing the certification process, and of course take into the consideration the time and effort arguing with the custodian and filing taxes in relation to the amount of this Roth rollover and the double taxation he would eventually pay if not corrected.
Microsoft Word – rp-20-46.docx (benefitslink.com)
Permalink Submitted by Mary Kuropatkin on Mon, 2022-03-21 15:19
I appreciate you responding with guidance on this. Have a great day!