Automatic Rollover

Submitted by Colin O on Thu, 2023-05-18 05:30

I had a 401k with less than 5k in it and left the company. I missed the communications about the required close out of my 401k and it was automatically rolled to a Rollover Traditional and Roth IRA (I assume these are the safe harbor automatic options). I am now requesting to move my funds to my Trad IRA and Roth IRA at another firm. The custodian requested I fill out a direct rollover/transfer form and include a letter of acceptance from my new firm. I elected for a direct rollover/transfer (terminology used on their form) and had the check made payable to my new firm FBO me and sent directly to my new firm. I recently spoke with the original custodian and they claim this is a reportable event and I will be receiving a 1099-R coded G for direct rollover? I assumed this was a trustee to trustee transfer of like accounts and therefore not reportable. Does the fact that these accounts at the custodian are a result of an automatic rollover of my old 401k? The automatic rollover took place last year. Thanks for any advice!



Submitted by David Mertz on Thu, 2023-05-18 11:43

  • There seems to be confusion between you and the custodian as to what sort of accounts are receiving the funds from these traditional and Roth IRAs or the custodian rep is confused about the reporting requirement.  You said that you are moving these traditional IRA and Roth IRA at another firm.  These movements would be done as nonreportable transfers, not as reportable distributions and rollovers; a trustee-to-trustee transfer of an IRA is neither a distribution nor a rollover.
  • Forms for moving funds from traditional and Roth IRAs usually make a distinction between a direct rollover (which, by definition, means movement to an employer plan like a 401(k)) and a transfer (which would be to a like-kind IRA).  Mistakenly marking the box for a direct rollover when the movement is instead IRA-to-IRA causes incorrect reporting.  Code G reporting a distribution from an IRA is only to be used for a rollover of a traditional IRA to a traditional account in an employer plan like a 401(k).
  • The Roth IRA is not permitted to be rolled over to another employer plan and can only be moved to another Roth IRA, so “direct rollover” is never permitted for a Roth IRA.  A Roth IRA can only be moved by nonreportable trustee-to-trustee transfer or by indirect, 60-day rollover.  (Indirect, 60-day rollovers of IRAs to like-kind IRAs should generally be avoided due to the one-rollover-per-12-months limitation.)
  • The fact that the traditional and Roth IRAs were established by rollover from the 401(k) has no bearing the movement of these IRAs to different IRAs.

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