Roth Question
Hello, I have a client who rolled a Roth portion of their 401k into their IRA instead of to their Roth. Is their anyway to undo this as a possible return of excess or would the client need to track the basis of the Roth amount. Our custodian does not track Roth IRA contribution basis.
Any feedback would be appreciated. Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2021-11-12 18:07
If caught soon enough, it may be possible with full documentation to convince the IRA Custodian to correct the error. This is by far the best solution if it can be accomplished. The rollover of Roth 401k money into a non Roth IRA is not an allowed rollover and constitutes an excess regular contribution to the IRA. This must be reported as a distribution from the Roth 401k (probably partially taxable and subject to penalty) and the removal of excess from the TIRA will be subject to tax and penalty on any earnings generated in the TIRA. And the future tax free potential of this Roth money will be lost unless the client can convince their Roth custodian to accept a late rollover (extend the 60 day deadline) using Rev Proc 2020-46. This is done by completing a certification form showing the reason for the delayed rollover and the Roth custodian would have to cooperate. Most likely, reasons a) or c) in the Procedure might apply. See following link:
Microsoft Word – rp-20-46.docx (benefitslink.com)
To be clear, the bad rollover must be distributed from the TIRA as excess. Basis cannot be tracked for a disallowed rollover.