1099-R Rollover Question

[Chuckk]

I think I have the answer to this, but want confirmation from someone else.  

I performed a rollover from a 401k to a traditional IRA.  However, my process of doing so involved me taking a distribution check directly and then giving it to my financial consultant who invested it into the new account.  I was told that this would result in me paying taxes on the rollover distribution amount.  

However, my 1099-R states things differently.  Box 1 states amount of distribution and then box 2 (taxable amount) also states that full amount, but the distribution code listed is G.  According to what I've read this would imply that the rollover went to an account that would NOT require paying taxes on it.  

So my question: Am I okay filing this as is without paying taxes on the amount of the distribution?  Turbotax has interpreted this situation as such and I am just looking for confirmation from someone else so I don't get pegged during an audit and owe taxes as well as a penalty.

Thank you!

[VolvoGirl]

Was the check made out to you or to the new account?  G is a direct transfer.  But either way it is not taxable to go from a 401K to a Traditional IRA.  Only taxable to a ROTH IRA.  Unless they took any withholding out of the check.  Then the withholding could become taxable.

Who said it would be taxable?  Your financial person?

[macuser_22]

A code G is a direct trustee-to-trustee rollover even if you are given a check that should be issued to your IRA and not you.

If you rolled the 401(k) into a *Traditional* IRA, the 1099-R is incorrect.  Box 2a must be 0 (zero).  That would be a before-tax 401(k) being rolled into a before-tax IRA so nothing is taxable.

Box 2a being the same as box 1 implies that the 401(k) trustee believed that this was a 401(k) being rolled in to a *after-tax* Roth IRA so that the entire amount would be taxable.

Either the trustee that issued the 1099-R did it wrong, or you put the money into the wrong type of IRA.

[Chuckk]

Thank you for the reply. This is helpful and it highlights some things that I was perhaps forgetting about. From my understanding, the money was put into a traditional IRA because the initial distribution limits were higher allowing me to put all of it into a single account. This was done even though the plan was to pay taxes on it. Also, I cannot remember exactly but I believe the check was in my name. But I never deposited it into my personal bank account. It was given to my financial consultant to open the IRA account for me.

So I guess the question is what part of the form takes precedent or does it not matter because there are multiple errors here?

[Chuckk]

I answered some of this to the other users response, but yes the financial consultant told me this. I believe I was told the traditional IRA had a higher max amount to put in so that's why it was chosen over the Roth despite the plan being to pay taxes on it. Not sure if withholding was taken out. 

[macuser_22 · Accepted solution]

A code G check is never made out to you, it might be made out to your IRA, with your name on it, but only the IRA trustee can cash it.

The question is:  what type of account did tell the 401(k) trustee that the rollover was going to? 

If you told them a Roth, as your question implied " I was told that this would result in me paying taxes on the rollover distribution amount." .   It would only be taxable if going to a Roth.

If *you* decided to put it into a Traditional IRA instead then  the error is on your part for not answering "YES" to the TurboTax interview question that the money went to a Roth IRA which would have made is all taxable.

If in fact, that is what happened, and the money is actually in a Traditional IRA and not a Roth, then the remedy is to file a substitute 1099-R (the 1099-R type screen has that option) to replace the 1099-R that you have, and enter exactally as the 1099-R you have but make box 2a  0 (zero) .  Then enter an explanation that the distribution want to a Traditional IRA instead of a Roth IRA.

If you just file as is, that will guarantee a IRS audit in about a year because what you reported on you tax return is in conflict from what the 1099-R is reporting.

Are you sure it is in a Traditional IRA and not a Roth IRA?

[macuser_22]

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@Chuckk wrote:

I answered some of this to the other users response, but yes the financial consultant told me this. I believe I was told the traditional IRA had a higher max amount to put in so that's why it was chosen over the Roth despite the plan being to pay taxes on it. Not sure if withholding was taken out. 

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There is no maximum that you can roll into either type of IRA.  Tax withheld would be in box 4. 

[Chuckk]

I'm positive it is in a traditional IRA currently. I confirmed it on the retirement fund website before starting this whole conversation. I think you're advice in regards to filing a substitute 1099-r makes the most sense right now. I was even considering having my 401k company resend out the 1099-r so it accurately reflects that.  However, before I do any of that I need to hear back from my financial consultant about some of the questions you brought up like whether the check was indeed in my name and why it went to a traditional IRA. 

Thank you for the advice. It really helped sort out some of the key issues. 

[macuser_22]

You should ask the 401(k) trustee to issue a corrected 1099-R before using the substitute.  One of the explanation statements asks what steps you took to get the 1099-R corrected.  If the trustee refuses then you can say that in the statements.

[Chuckk]

@macuser_22  Just wanted to provide an update on this question.  After consulting with my financial consultant it turns out we purposely did a rollover to a traditional IRA and had planned to do a rollover to a ROTH at a later point.  So the only error was on my part in not understanding this extra step we had taken, but also with the 401k company that issued the 1099-R, because they should not have included the amount as taxable in form 2a.  So you were right in pointing that out and I will be attempting to correct that form first through the 401k trustee and then with a substitute form if that doesn't go anywhere.  

Thank you again for the help!

[macuser_22]

Glad you got it figured out even if it is a hassle.    Glad if I was any help.