Qualified Plan to Roth IRA question
I have a client that took a distribution from her qualified plan in May of 2014 and had the check payable to herself. She now wants to move the dollars into a ROTH IRA. Are there any rules to be aware of regarding a qualified plan distribution converting to a ROTH IRA in this way?
Permalink Submitted by Alan - IRA critic on Mon, 2014-06-16 20:42
She must be sure to roll the proceeds into the Roth within 60 days of receipt and she also must replace the 20% that was withheld from her distribution if she wants a complete rollover. If she does not replace the withholding amount, the withholding amount will be subject to both tax and penalty while the amount rolled to the Roth is subject only to tax. Further, if there is any basis in the qualified plan distribution, the basis is not subject to tax or penalty. The Roth rollover is reported directly on line 16a and 16b of Form 1040 and is NOT reported on Form 8606. If the distribution from the qualified plan was from a designated Roth account instead of from the pre tax account, different rules apply and there will be a separate 1099R for each portion if the rollover included both pre tax and designated Roth balances. The other part of this is that the accounting for purposes of determining what is in the Roth IRA must be understood and documented for reporting subsequent distributions taken from the Roth IRA.