Tax return completion if execute Roth and Traditional 401k rollover to Roth IRA
Hi:
I’m age 67 and executed a 2024 In-service employer Roth 401k and Traditional 401k rollover to the same already existing Fidelity Roth IRA(opened in 2021). I would like to execute a second Roth 401k and Traditonal 401k rollover in 2024 from the same employer account to the same Fidelity Roth IRA account because of the exorditant employer account fees.
After my 2024 rollover execution, a Fidelity representative discouraged the already completed rollover due to the “complexity of completing 2024 tax returns because of the way that the tax forms will be completed”. He stated the 2 step rollover process is better for tax return completion(2 step process: traditional 401k rollover to traditional IRA and then traditional IRA rollover to Roth IRA.) I wanted to eliminate the 2 step process but concerned that my tax return completion will be more complex given I would like to complete a 2nd rollover in 2024.
- How does the tax return completion differ if execute the direct rollover from 401k accounts to Roth IRA? Is it less complex/better to execute the 2 step process instead for tax return completion?
- Confirm that tax law allows multiple in-service traditional and Roth 401k rollovers to Roth IRA within same year and within 365 days of each other.
Permalink Submitted by Alan - IRA critic on Wed, 2024-12-18 12:32
The rep is incorrect, assuming that Fidelity’s 1099R forms will be correct. When direct Roth rollovers were first allowed about 15 years ago, some firms neglected to show the taxable amount in Box 2a, but those days should be behind us.
Your own tax reporting will be easier by avoiding Form 8606 that would be required if you did a TIRA to Roth conversion. When you go direct, all you do is enter the both rollovers on lines 5a and 5b (taxable amount) on Form 1040. Direct to Roth IRA also gets your money into the Roth IRA faster.
You should get a 1099R coded H for the direct Roth 401k>Roth IRA rollover, and a 1099R coded G for the pre tax 401k>Roth IRA rollover, but this 1099R will include the taxable amount in Box 2a.
There is no one rollover limit for distributions made from a qualified plan to an IRA and IRS rules do not limit the number of distributions made each year, but the plan could have their own limit.
Another reason the rep makes no sense is that you already did one of these direct rollovers, so even if they were correct about complexity, you already did one and doing a second one in a different way would only increase that complexity.
But if you are still working, doing these Roth rollovers (the pre tax to Roth portion) in substantial amounts will spike your marginal tax rate, so you may want to limit the pre tax to Roth portion of these rollovers for that reason. The Roth 401k to Roth IRA has no current tax implications.