Roth 401(k) to Roth IRA Rollover

Submitted by ShipsnGiggles on Fri, 2022-09-30 14:52

How does an individual report a non-qualified Roth 401(k) to Roth IRA rollover?
I am aware Roth 401(k) contributions move to the Roth IRA as basis – How is this reported/tracked? Form 8606?

Thank you



Submitted by Alan - IRA critic on Fri, 2022-09-30 15:31

 The direct rollover is reported on lines 5a and 5b of Form 1040. There is no current tax implications, but the taxpayer will need to update and track their Roth IRA basis. The amount of Roth 401k deferrals will show on the 1099R, and this is added to regular Roth IRA contribution basis. If  IRRs were done in the Roth 401k, those IRRs are also added to Roth IRA regular (not conversion) cost basis. And if IRRs were done in the prior 5 years, the holding period carries over to the Roth IRA for purposes of the 10% recapture tax. Form 8606 is not needed until the next non qualified distribution from the Roth IRA. The 1099R reporting the Roth 401k to Roth IRA rollover should be retained until the Roth IRA is itself qualified.

Submitted by Whodiini on Mon, 2022-10-03 19:59

I read with interest this months article about Roth distributions.  It listed 3 categories: contributions, conversions and earnings.  But what about rollovers?  When a rollover occurs, does one need to track the source contributions, conversions and earnings into the new Roth account as well?  Or does a rollover establish a new basis and is considered a contribution?

Submitted by Alan - IRA critic on Mon, 2022-10-03 22:13

  • Since all Roth IRAs are treated as one combined account, your question addresses rollovers from other qualified plans including pre tax and designated Roth rollovers. After such a rollover, if your Roth IRA is not yet qualified, you need to update your Roth IRA basis to include the rollover contribution. A pre tax 401k rolled to a Roth is treated as if it were a Roth conversion and combined with your basis in conversions. A NQ Roth 401k rollover will be added to Roth regular contribution basis except for any gains in the NQ Roth 401k. 
  • Parallel tracking must be done for purposes of the 10% recapture tax on conversions not held for 5 years. The 5 year period dates back to when the pre tax 401k rollover was completed to the Roth IRA or in the case of a Roth 401k, when the in plan Roth rollover was done within the plan. The period continues to run after the funds are rolled to the Roth IRA until the 5 years have been completed. 
  • Once the Roth IRA is qualified, the need for this tracking ends, as does the need to file Form 8606 to report any Roth IRA distributions.

Submitted by Carolyn Kiefer on Thu, 2022-12-08 01:07

Early this year the company I retired from in 2015 rolled over (distributed?) everyones 401K to an Investment Management company.  I didn’t request this, it was just done.I have received a letter that states “Your distribution included ROTH contributions and the taxable/non-taxable amount of these contributions was incorrectly reported.”It shows the original tax info was Distribution Total $X, Taxable $0, Non-Taxable $X.  The correction now shows  taxable $X*0.46 and non-taxable $X*0.54 and states it will be reported on my 1099-R.  I understand the Management company will send a form 5498 to show it was rolled over.The contributions were made over 5 years ago and I am well over 59-1/2.  I thought Roth IRAs were non taxable, so why is this rollever showing part of it is taxable?

Submitted by Alan - IRA critic on Thu, 2022-12-08 01:54

  • The plan would have to explain this. Are these actual numbers, or just hypothetical amounts? If actual, this might reflect that a few cents from both the Roth and pre tax accounts were left out of the direct rollovers, and the plan decided it was easier for them to just distribute the amounts to you, the pre tax amounts being .46 and the Roth amount .54. The pre tax amount rounds to 0 taxable income on your return. I am just speculating and the plan should provide you with a real explanation. This might mean a double set of 1099R forms for you in January.
  • The main balance moved by direct rollover, which would produce a separate 1099R for the pre tax and Roth balances. The letter refers to a “distribution” which suggests a separate check payable to you. The letter did not mention any such small check for $1.00?

Submitted by David Mertz on Thu, 2022-12-08 03:41

  • I think 0.46 and 0.54 mean 46% and 54% of the gross distribution.
  • If you were over age 59½ and the time of the distribution (you indicate that you were) and you participated in the designated Roth account prior to 2018 (which seems to be the case since you left the company in 2015), any distribution made to you from the designated Roth account in 2022 is a qualified distribution and entirely nontaxable, so the “correction” makes no sense unless X represents the total of the designated Roth account balance *and* the pre-tax balance in the traditional 401(k) account (which would still be a nonsensical way to present this information to you).  Because the distribution from the designated Roth account would be a qualified distribution if not rolled over, with a rollover to a Roth IRA the entire amount becomes contribution basis in the Roth IRA.
  • If the distribution from the designated Roth account was rolled over to a Roth IRA, the distribution is nontaxable.  If it was a direct rollover, the code-H Form 1099-R is required to show in box 2a that none of this rollover is taxable.  If the distribution was paid to you, the Form 1099-R should have code B (probably along with code 7) and again should show $0 in box 2a since the distribution was a qualified distribution.  Seems like the original information from the plan was correct and that the “correction” is erroneous.  You’ll need to sort that out with the plan.

Submitted by Carolyn Kiefer on Thu, 2022-12-08 17:57

Yes, 46% and 54%.I did talk with the company benefits (which actually connects the caller to the management company).  They said the 1099-R will have a G code and I would receive a 5498 showing the funds were rolled over.I told them I thought the original tax info was correct.  They didn’t give me an explanation as to why it wasn’t just said I’d get a 5498 form.I had taken a screen shot of the 401K prior to the rollover.  It shows1) Pre-Tax Contribution2) Roth Contribution3) After-Tax Contribution4) Company Matching The ROTH amount Total on the letter I received with the corrected tax info is the same amount as what was shown in item 2 of the 401K. So I am still confused why the original reported tax of $0 isn’t correct. 

Submitted by David Mertz on Thu, 2022-12-08 18:21

  • Code G without being paired with code B means that the Form 1099-R is reporting a distribution from the traditional account in the 401(k), not from a designated Roth account.  A direct rollover from the designated Roth account to a Roth IRA would have code H, never code G.
  • If this code-G From 1099-R is the only one, it seems that the plan believes that you’ve made after-tax contributions to traditional 401(k) account, not to a designated Roth account, and that you did not have any designated Roth account in the 401(k).
  • A code-G Form 1099-R reporting a direct rollover from a traditional 401(k) account to a Roth IRA will show the entire gross amount in box 1, the after-tax amount in box 5 and the taxable difference in box 2a.  It seems that the correction was needed because they originally reported the direct rollover as being to a traditional IRA, which would be a nontaxable rollover.
  • Had a single distribution from the traditional 401(k) account had the after-tax portion deposited into a Roth IRA and the pre-tax portion deposited into a traditional IRA, the result would have been nontaxable.  In that case the code-G Form 1099-R would have the gross amount in box 1, a zero in box 2a and the after-tax amount in box 5.

Submitted by Alan - IRA critic on Thu, 2022-12-08 19:05

Since you thought you had a Roth 401k balance and the investment company referred to that balance, if you don’t get a 1099R with Code H for any Roth 401k distribution, it will be a real mess to get corrected. You might check your most recent plan statements prior to the transfer to this investment company to determine what the type and amounts were for all sub accounts in the plan, compare those figures when you get the 1099R forms in 6 weeks or so, and also verify with your IRA custodians what the amounts were that were deposited into each IRA.  

Submitted by Carolyn Kiefer on Fri, 2022-12-09 22:09

401K Prior to Rollover 

  • 1) Pre-Tax Contribution
  • 2) Roth Contribution
  • 3) After-Tax Contribution
  • 4) Company Matching

Submitted by Carolyn Kiefer on Fri, 2022-12-09 22:14

Seems, perhaps I haven’t been clear, so hopefully this will be clearer.Item 2, the ROTH contribution to the 401K was rolled over to a ROTH IRA (the other three were rolled to a Traditional IRA). The letter regarding the tax correction only dealt with the ROTH IRA.   The total shown on the letter was the exact amount shown in item 2, the 401K Roth Contribution.From that total, 46% shows taxable and 54% non-taxable.

Submitted by Alan - IRA critic on Fri, 2022-12-09 23:28

Rollovers from a Roth 401k to a Roth IRA will be totally non taxable, ie there should be nothing in Box 2a of the 1099R. But that 1099R must also show your Roth 401k contribution amounts in Box 5. These are amounts that become basis in your Roth IRA, and had you taken a distribution instead of a rollover, these amounts would not be taxable. The rest of the Roth 401k that represents gains would be taxed if this was a non qualified distribution but are not taxed in a rollover. Perhaps this is the reason for the letter. If they cannot explain it more clearly, wait for the 1099R (coded H) and check it carefully.

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