Distribution Effective Date
Client requested distribution in middle of December 2009 for a direct trustee to trustee rollover of his 401(k) account to a Roth IRA. The distribution was not completed until Jan 6, 2010. Is the rollover a 2009 event or a 2010 event?
Permalink Submitted by Alan Spross on Wed, 2010-09-15 19:17
2010. I assume there was no 1099R issued for 2009. Client therefore has a 2010 conversion including the two year income deferral option.
Perhaps the plan was not up to speed yet with direct Roth conversions. If the client does not want the conversion for 2010 it can be recharacterized to a TIRA prior to 10/17/2011. It cannot go back to the plan.
Permalink Submitted by James Dye on Wed, 2010-09-15 21:02
Client wanted the income in 2009 that would have been off set by other losses… Client would like to report the income from the rollover in 2009. Administrator’s delay fouled up his planning. Any relief or way around the problem?
Permalink Submitted by Alan Spross on Wed, 2010-09-15 21:23
No solution that I know of. This issue is between the client and the custodian, and the custodian is just going to claim that client did not get the request done early enough considering year end holidays and year end transaction backlogs. That said, Dec 15th should still have been enough lead time unless there was another bottleneck. Was his Roth IRA all set up by the time he ordered the transfer?
Permalink Submitted by mk foss on Wed, 2010-09-15 22:58
My understanding was that the Roth conversion had to be “in process” at 12/31. I’ve tried to find a cite for this but I’m having difficulty. RIA indicates that a Roth conversion is not really a “rollover” but a distribution and contribution – the cite they give for that isn’t clear to me. But if that is correct and the “distribution” portion occurs in 2009 and the contribution part occurs in 2010 – I think it’s reportable in 2009.
I also can’t find anything in the 1099R rules that would clarify the reporting.
If someone takes a distribution from a traditional IRA late in the year and rolls it over within 60 days (but in the next tax year) they often receive a 1099R for the previous year.
Will IRS argue that they shouldn’t have tax dollars in an earlier year? I think this is a gray area.
Permalink Submitted by Alan Spross on Thu, 2010-09-16 00:17
I think this might come down to the actual mechanics of the conversion. I agree that the distribution date is the date that determines the taxable year for the conversion even if the Roth is not funded until the following year. It could well be that the physical method of transfer (eg ACATs vrs non ACATs) affects the actual date of distribution from the plan and therefore the year for the 1099R.
There is no downside for aggressively pressing the plan administrator to rectify the situation, even though it is a long shot. They would probably have to discover some act of negligence on their own part to consider a late 1099R and there also might be some other hurdles to overcome in issuing a 2009 1099R this late.