401K to Roth 401K

[Anonymous]

Hello,

Last year I rolled over a 401K from Merrill Lynch to my current employer's Roth 401K.  The 1099-R form I received from Merrill has box 2a as $0.00. 2b is also unchecked. I was under the impression that this was a taxable event. In TurboTax, it did ask me if this was a conversion from a 401K to a Roth 401K and I answered yes. Although the 1099 form doesn't say it and TurboTax also does not reflect it, my gut tells me I should owe taxes on this. 

Thanks in advance for any help you can give!

[dmertz]

It is impermissible to roll funds from one employer's traditional 401(k) account to the designated Roth account in another employer's 401(k) plan.  You'll need to contact to the plan that received the rollover and have them make the correction (treating the deposit into the designated Roth account as an excess contribution, making a gain/loss-adjusted distribution, and allowing a late rollover of the original distribution to the traditional account under IRS Notice 2020-46) unless the funds were originally properly deposited into the traditional account the receiving plan and subsequently moved to the designated Roth account in that plan by In-plan Roth Rollover.

[Critter-3]

I highly doubt the 401K was rolled directly  to a ROTH 401K  ... check with the new employer's plan custodian.  The 1099-R you got should show a code G in box 7 to reflect the 401K to 401K rollover.  Now if you want to make a conversion from the 401K  to a ROTH 401K then that would be a taxable event and would be coded differently. 

[dmertz · Accepted solution]

Certainly the code-G Form 1099-R with $0 in box 2a indicates that the rollover was intended to be to the traditional account in the new employer's 401(k).  However, that doesn't mean that the new employer properly deposited it into the traditional account.  If the funds were properly deposited into the traditional account and subsequently moved to the designated Roth account by an In-plan Roth Rollover, the receiving plan will be issuing a Form 1099-R that will have in box 1 the amount moved, the taxable amount in box 2a (generally same as the amount in box 1) and code G in box 7 that needs to be reported along with the Form 1099-R from the old plan.  Check with the new employer's plan to see if they handled the direct rollover correctly and will be issuing a form 1099-R for an In-plan Roth Rollover.

It's often the case that the old plan does not accurately specify the account that is to be receiving the direct rollover, so it's entirely possible for the receiving 401(k) plan to deposit the funds into the wrong account, possibly at the incorrect direction of the employee which makes the receiving plan believe that the funds came from a designated Roth account in the originating plan when they did not.  Checks for a direct rollover are often just made out to the new plan FBO the employee without more explicitly identifying the receiving account (or at least the type of account that is to receive the rollover).