Accidental Roth conversion - how to proceed

[NTT8]

In 2023, my daughter requested the custodian of her retirement accounts (401k and Roth 401k) from her summer internship in 2022 to close her accounts and send her 2 direct rollover checks with the balances. Without realizing the difference in the 2 accounts (one funded with pre-tax money, the other post-tax), she deposited both checks into her brokerage's Roth IRA account. At year end 2023, we received 2 1099Rs from the custodian firm, one with a G in box 7, the other with an H. Both with $0 taxable amount in box 2a. We realized she had accidentally converted her 401k into her Roth IRA. Luckily she was eligible to do a Roth conversion in 2023 since she only worked in the summer. She contacted the custodian firm to try to obtain a corrected 1099R that shows the Roth conversion, but they told her that they would not be able to do it because (1) the conversion did not happen at their firm, and (2) they did not support conversions. 

How should we proceed to finish her tax return? Should the brokerage firm with her Roth IRA issue the 1099 with the conversion? If not, can she furnish the information on her tax return to show the conversion? Would appreciate any guidance.

[dmertz · Accepted solution]

Assuming that the check with the funds from the traditional 401(k) account did not specifically identify the traditional IRA as being the recipient, it appears that the IRA custodian did not make a correctable mistake and the resulting rollover to the Roth IRA cannot be undone.  This makes the rollover taxable.

I agree that the 401(k) plan has no obligation to change the code-G Form 1099-R be cause this was not their error (although I don't think the second reason they give is correct because I believe they are legally obligated to offer a direct rollover from the traditional 401(k) account to a Roth IRA).  Under these circumstances, you'll need to enter a substitute Form 1099-R (Form 4852) replacing the zero in box 2a with the correct taxable amount and provide explanation for the change.

[NTT8]

In that case, should Form 4852 be filed instead of or in addition to the original 1099R with code G in box 7? I suspect the former, since you said "substitute."

In either case, do we put in code 2 in box 7 and enter the custodian firm's TIN and address in boxes 6 and 5 respectively? 

[dmertz]

Right, the substitute from is filed in place of the original.  Only box 2a changes to show the taxable amount.  Everything else remains unchanged, including the code G in box 7.