I took an in service rollover on 50% of my 401K to an IRA. When the rollover was processed, the bulk of it went to the IRA as expected however a portion (approx. 6%) was rolled into a standard brokerage account. I was told this amount was from excess contributions made in prior years and could not be rolled to the IRA. I received a 1099-R for this amount with a 1 in box 7. Box 2 is $0.00 (not blank) and both check boxes in 2A are empty. The question is, what do I do with this amount? I assume there is a tax/penalty implication for keeping it in a brokerage account. Since I was already taxed on the principal amount and have no idea what portion of the distribution was post tax I am not sure exactly how this works. Can it now be rolled from the brokerage account (within 60 days) to a Roth to avoid tax and penalty? Any insight you have on this situation would be much appreciated!
For what year was the excess contribution made?
Was the excess contribution the result of an excess deferral from your compensation or was it instead an excess employer contribution (perhaps the result of failure of ADP or ACP testing)?
How did you already pay taxes on this amount?
No, distributions of excess contributions are not eligible to be rolled over to another retirement account. However, a code 1 without a code 8 or code P is not reporting a distribution of an excess contribution, it's reporting a regular distribution. Is there no code 8 or code P along with the code 1?
If this was truly a distribution of after-tax basis that was in your 401(k) as indicated by the Form 1099-R, not an excess contribution, yes, it can be rolled over tax free to a Roth IRA within 60 days of the date it was distributed. If not rolled over within 60 days, unless you would qualify for a waiver of the 60-day deadline, it must remain distributed. Rolled to a Roth IRA or not, it's not taxable.