401k Rollover & Conversion
Client received a check from their 401k for $100K during 2015 (age based in-service withdrawal). Client immediately deposited $50K into their Traditional IRA and $50K into their Roth IRA – well within the 60 day time frame. Broker issued them a 2015 1099R for the full $100K coded G, as if it was a direct transfer.
Tax software doesn’t seem to allow you to indicate that part of this distribution was actually converted due to it being code as a direct transfer (so it assumes 100% nontaxable). Would it be appropriate to create two separate 1099R worksheets in order to properly reflect half of the dollars being rolled over and half of the dollars being converted? If not, any feedback on how to resolve this issue?
Appreciate any guidance.
Permalink Submitted by Alan - IRA critic on Thu, 2016-03-31 18:38
Yes, I think the 1099R needs to be split into two different data entries. I assume the 1099R shows the Roth portion of the direct rollover in Box 2a as taxable.
Permalink Submitted by David Mertz on Thu, 2016-03-31 20:06
Does the Form 1099-R show any amount in box 5? A code G Form 1099-R with a zero in box 2a and nothing in box 5 indicates that the payer is reporting that the entire distribution was directly rolled over to a traditional IRA, none of it to a Roth IRA.
Permalink Submitted by Alan - IRA critic on Thu, 2016-03-31 20:18
There have also been several cases of qualified rollover contributions (401k to Roth IRA) being done and the taxable amount omitted from 2a, apparently due to force of habit since so few of these go directly to Roth IRAs. If that is the case, the 1099R should be corrected.
Permalink Submitted by David Mertz on Thu, 2016-03-31 20:32
Also, it’s often the case where the payer makes out the check to the receiving custodian without properly indicating the type of account to which the rollover is to be made, and the employee unexpected splits the deposit between traditional and Roth IRAs without objection from the receiving custodian. This results in the reporting by the payer not matching what really happened. Since the payer generally believes in such a case the they did their job properly, they often will not issue a corrected Form 1099-R and it will fall to the employee to file a substitute Form 1099-R (Form 4852) with their tax return to report the direct rollovers that really happened and to show the correct taxable amount in box 2a. (Presumably since it is believed in this case that the portion directly rolled to the Roth IRA should be taxable, I would expect to find box 2a on the original Form 1099-R to be zero and box 5 to be blank.)
Permalink Submitted by Robert Meyer on Thu, 2016-03-31 20:22
I will get these details and respond asap.
Permalink Submitted by Robert Meyer on Mon, 2016-04-04 15:55
This has been resolved – thanks for all the feedback.