401K to Roth IRA Rollover/Conversion HELP!
I am 38 and had a very low income in 2010 and have a lot of deductions. I want to take advantage of converting my employer 401K into a ROTH IRA.
On 12/27/2010 I had my past employer send a check to convert my funds from a 401k plan to go into a ROTH IRA plan that already exists. The check was made out to the Roth IRA holder with my Roth account number. I did not receive the check until January 3, 2011. My Roth IRA holder stated that they cannot deposit the funds into the ROTH IRA directly but first must deposit the funds into the traditional IRA and then convert into the ROTH IRA. I currently have the check sitting on my desk.
I am concerned that if I do this I will receive a 1099 from the first company for 2010 and then get another 1099 for 2011 from the other company having to pay taxes twice.
I would like some advice how to minimize my tax consequences and handle my current situation. [u][b]Any advice is appreciated.[/b][/u]
Thank you for your input.
Permalink Submitted by Alan Spross on Thu, 2011-01-06 00:53
You need to elevate the discussion with your Roth IRA custodian to the supervisory level since the person you contacted earlier is not up to speed. This is a direct conversion from a qualified plan, and there is no reason to run the funds through a TIRA first. If they did that, it would result in the IRS looking for two taxable amounts instead of one since the plan will report a taxable amount on their 1099R because they know the check was made payable to a Roth IRA.
You are going to get a 1099R from the employer for 2010 since they issued the check in 2010. Since you want this conversion in your 2010 income, you will have to opt out of the two year deferral for 2010 Roth conversions. You also have until 10/17/2011 to change your mind if you want the income reported in 2011 and 2012 instead. Don’t be concerned if the 5498 shows a 2011 conversion since this does not change the year you would report the conversion on your return. It will be for 2010.
Ask to talk to a supervisor with your Roth custodian and insist that they accept the check as a rollover conversion contribution to the Roth IRA.
Permalink Submitted by Craig Rich on Thu, 2011-01-06 14:51
Thank you for the assistance.