Client left employer #1 and rolled $100k into an IRA. It is a segregated rollover IRA that has not been tainted with any “non 401k” funds. The money is/was eligible to later be recontributed to a new 401k.

Client begins work with employer #2 at some later date and wants to move SOME of the money into the new plan. That said, new plan allows roll-ins, but doesn’t have the administrative paperwork and processes in place to easily do a direct trustee-to-trustee transfer. Also, for reasons that aren’t important, the client needs all of this done within 14 days and dealing with incompetence at corporate HR isn’t going to be an option. So, indirect rollover is the only viable option.

Client wants to take a distribution from IRA, and then do an indirect rollover into 401k. Because money is coming from IRA, there is no mandatory withholding, which helps. However, as is common with indirect rollovers, IRA custodian generates a 1099-R with “1” coded in box 7. After all, how can they know that he actually rolled the money over at all, much less within the 60 day window. Now normally, this wouldn’t be a problem because the receiving IRA would generate a 5498 showing the rollover and the IRS would be happy. However, 401k plans do not generate 5498 forms (correct me if I’m wrong on that). Therefore, there is no system of checks and balances in place – the IRS has no way of confirming that the money was actually rolled over. I have to believe this is going to cause the client trouble, once the IRS computers notice this discrepancy.

Any thoughts, advice, or experience with such matters? My biggest fear was that indirect rollovers into a 401k are not allowed, but I have been unable to find any evidence to support this fear, and the 401k company has stated they would accept such funds.