Hello, my question is related to the tax reporting and tax recordkeeping. I am trying to figure out whether I should -
1. Rollover a portion of my 401K directly to a Roth IRA over the years. In doing so, I would have one 1099R (from the 401K administrator) and one 5498 (from the Roth IRA receiving custodian), and I wouldn't need to do a form 8606 to report the conversion from Rollover IRA to Roth.
2. Rollover all the money 401K to a Rollover IRA, then from the Rollover IRA to a Roth IRA. By doing this, I would have two 1099Rs (one from the 401K admin for the 401K rollover to Rollover IRA, and one from the Rollover IRA custodian for the converting of Rollover IRA to Roth), and two 5498s (one from the Rollover IRA recipient custodian and one from the Roth IRA recipient custodian); and I would need to do a form 8606 for the conversion of Rollover IRA to Roth IRA.
A financial advisor recommended to rollover the entire 401K to a Rollover IRA first (and I'll have to open a Rollover IRA account), then convert a portion of it to Roth over time. He said it would be cleaner for tax reporting and recordkeeping. I am not sure why it would be cleaner, or what the benefits are, comparing to rolling over a portion of the 401K directly to Roth every year. If I do the direct over from 401K to Roth, It would be just one step (401K -> Roth, vs 401K -> Rollover IRA -> Roth), I would only have one 1099R and one 5498, I would not need to do a form 8606 since it is a rollover (not converting from an IRA to Roth), and I would pay the tax for rolling over from 401K (tax deferred) to Roth as a taxable event. Once it is done, the 5498 would show the amount rolled over the Roth IRA for recordkeeping. So I am not seeing the benefits of doing the extra step by rolling over the 401K to a Rollover IRA first, then to Roth. Any thoughts? Thank you.
