60 day rollover to IRA and Roth IRA

Submitted by Robert Smith on Fri, 2019-02-15 21:31

Client received a 1099R for Roth portion and Traditional portion of 401(k) distribution in 2018. Check was received in late December 2018. Roth 1099R shows $1,041.77 in box – same amount shown on distribution letter that came with the distribution check as Roth contribution amount. Distribution letter also shows $68.46 as “After-tax Contribution loss. 1099R has $976.88 in box 1 – Gross Distribution and $3.57 in Box 2a – Taxable amount; What amount can be rolled to her Roth IRA within 60 days? $1,041.77?; $973.31?; Some other number



Submitted by Alan - IRA critic on Fri, 2019-02-15 23:34

The 60 day time limit is running short, and there was probably withholding taken out of at least the traditional distribution which will have to be replaced to have a full rollover. Full rollovers will erase any tax or penalty from the 2018 return. Client has a choice of rolling the gross traditional distribution (box 1 amount) to a TIRA to avoid taxes OR to roll the combined gross amount from both distributions to a Roth IRA. If that is done, taxes will be due on the pre tax amount of the traditional distribution. Is the $976.88 the box 1 amount of the traditional 401k distribution, and only 3.57 is taxable?  What about withholding?

Submitted by Robert Smith on Sat, 2019-02-16 17:30

Here are the full 1099R details.  Roth 1099R has $976.68 in box 1;  $3,57 in box 2a; $.71 tax withheld in box 4; and $1,041.77 in box 5. The traditional 1099R has $11,320.83 in box 1 and box 2a, and $2,264.17 tax withheld in box 4.  It would seem to me that the total taxable amount of $11,324.40 ($11,320.83 + $3.57) could be rolled to either a Roth IRA or TIRA ( taxes due on total if rolled to the Roth IRA – and needs to come up with the funds to replace the withholding).  For the rollover to the Roth IRA with the Roth 401(k) is she able to roll the contributed amount of $1,041.77?  If so is she then able to use her own funds to make up for the $68.46 loss? Or only roll $973.31 (the $976.88 gross distribution less than $3.57 taxable amount). 

Submitted by Alan - IRA critic on Sat, 2019-02-16 21:48

The Roth 1099R is flawed because if the Box 5 basis is greater than Box 1, there should not be any gains in 2a. However, it is not clear which of the figures are wrong. Also, note that the withholding tendered to the IRS does not change the other boxes, it just reduces the net paid to client. 

  • Client should roll over the gross Box 1 amounts, and that will require coming up with the amount withheld. If we assume that the Box 1 amounts are correct, the rollover amount should be 11,320.83 plus 976.68, with at least 976.68 going to the Roth IRA and the 11,320.83 going to either, but it will be taxable if rolled to the Roth IRA. Client needs to come up with other money to roll over amounts that were withheld. 
  • That said, the Roth 1099R is not correct, since there cannot be a taxable amount if basis is more than the plan balance. But it is not clear which numbers of the Roth 1099R are incorrect. 
  •  If the gross Roth distribution was 976.88, client cannot roll over more than that (the investment loss) to the Roth IRA. However, if Box 5 is correct, the amount contributed can be treated as the additional balance of regular contributions in the Roth IRA. To avoid problems created by a corrected 1099R after filing, client should contact the plan and request that the Roth 1099R be corrected to balance out. Of course, that will delay the tax filing until the plan can at least confirm that Box 1 is correct. If that is correct, the client knows the correct amount to roll over, which is going to erase any taxable amount anyway because we know that the Roth 401k total balance is to be rolled over. 
  • DId the checks actually received add up to 10,032.63 (B0x 1 amounts less withholding)?

Submitted by Robert Smith on Sat, 2019-02-16 22:38

The checks received total 10,032.83 ( the gross amount for the Roth 1099R is $976.88).  The letter that accompanied the checks (there were actaully two checks – the second was very small 44.64 gross with 8.93 withheld and no Roth contribution amount or loss.  The fisrst letter shows a gross distribution of 12,321.53, taxable amount of 11,279.76, Roth contribtuion amount of 1,041.77, 68.46 loss of after tax contribution and 2,255.95 withheld.  If the distribtuions were done mid year, I would only have these letters to go on to do the rollovers since the 1099s would not have been avaialble.  We are going to roll the Roth piece to a Roth IRA and the tradtional piece to a TIRA.  Based on the letters, we will roll $11,279.76 + 44.64 for a total of 11,324.40.  However this amount is 3.57 higher than the traditional 1099R.  The 3.57 is the taxable amount on the Roth 1099R.  Does it make sense to roll the 11,279.76 or should it be reduced by the 3.57?For the Roth rollover, should the 976.88 in box 1 be rolled over? and we will use the 1,041.77 as the contribution amount.  or should the 3.57 be subtracted from the 976.88 and roll that amount.  I beleive the gross amount in box 1 is wrong because if you subtract the 68.46 loss from the 1,041.77 contribution you get 973.31.  adding the the 3.57 taxable gets you to the 976.88 total in box 1.Just want to roll the correct amounts now and will deal with correcting the 1099s later.  

Submitted by Alan - IRA critic on Sun, 2019-02-17 03:21

  • At this point, I would ignore the letters. The IRS only receives the 1099R forms, so if client wants a complete rollover to avoid all taxes, client needs to roll the Box 1 amount of the 1099R coded 1 or 7 to her TIRA and roll the Box 1 amount of the 1099R coded B to her Roth IRA. She will then be able to report on Form 1040 that the entire distribution was rolled over and no taxes will be due. It’s simpler when the pre tax distribution all goes to the TIRA and only the Roth distribution goes to the Roth IRA.  The TIRA and Roth IRA custodians will then issue a Form 5498 reporting the rollover contributions that exactly matches the 1099R Box 1 amounts.
  • Only amounts distributed can be rolled over. Any investment loss cannot be made up by rolling over the loss amount. In other words, the box 2a taxable amounts and the withholding can be ignored for purposes of making an reporting the rollover contributions. Obviously, the withholding shown will be claimed on the 2018 1040 as taxes paid and will therefore be applied against the amounts the client must come up with now to complete the 60 day rollovers. 
  • As for the Box 5 designated Roth contributions amount, that figure is irrelevant to the rollover reporting, but it is applied to update the Roth IRA regular contribution basis as client must keep track of that figure until her Roth IRA is qualified. Essentially, the added Roth IRA basis means that more could be withdrawn from the Roth IRA tax free if a non qualified distribution is needed.
  • Again, I would just ignore the letters as they stand. Of course, if there is any evidence that the 1099R forms are incorrect and/or might be corrected, the client can get an extension of the 60 day rollover deadline per  Rev Procedure 2016-47 (error by financial institution).

Submitted by Robert Smith on Sun, 2019-02-17 21:04

Thank you. the Box 1 amounts will be rolled over to the respective TIRA and Roth IRA.  A small but potetnial problem would be the $3.57 taxable amount in box 2a of the ROth 1099R.  Assuming this amount is corrected to $0, no problem.  If for some reason it is taxable, taxes would be owed on that small amount.  I agree that box 2a should be $0 since contributions exceed the value.  Thanks again.

Submitted by Alan - IRA critic on Mon, 2019-02-18 02:11

As long as client rolls over the Box 1 amount of the Roth distribution, the 3.57 can be ignored due to the rollover. This is a Roth to Roth IRA rollover and very different from a pre tax distribution to a Roth IRA where the 3.57 would be taxable. 

Add new comment

Log in or register to post comments