After-Tax earnings accidentally rolled into Roth IRA

[fwl1982]

I took a distribution from my 401k at work.  I received two checks, one for my pre-tax contributions and one for my after-tax contributions.  I did not realize that after-tax earning were included in the after-tax contributions check as it was not shown on my statement or check stub.  Now I have gotten a 1099-R showing that I will owe taxes on the earnings of the after-tax earnings that I accidentally rolled into my Roth. Is there a way to fix this and have than money moved back to my traditional IRA?

[dmertz]

Nothing can be done.  The Tax Cuts and Jobs Act of 2017 eliminated that possibility.  The taxable portion of the rollover to the Roth IRA must be included in your taxable income.

On the plus side, growth on the money in the Roth IRA will now be tax-free once the requirements for qualified Roth IRA distributions are met.  If that money had been put into a traditional IRA, the growth would only be tax deferred.  You might come out ahead in the long run.

[fwl1982]

What about the possibility of an excess removal?

[dmertz]

Not permitted.  Returns of contributions are only permitted for regular contributions, not rollovers.  Even if you could, it would still be subject to income tax and potentially additionally subject to an early-distribution penalty.

(A failed rollover would become a regular contribution, but that's not the case here.)

[gauchogirl]

The receiving institution rolled both the after tax contributions and earnings into a Roth IRA instead of just the contributions.  The sending institution issued a 1099-R with the full amount of the distribution, zero taxable, and a code G.  After- tax contributions were listed in box 5 of the 1099-R.  Receiving institution has said there is nothing they can do as you mention above, and client has agreed to pay tax on the amount of after tax earnings accidentally put into a Roth.  How can I report this to show the earnings as taxable?  It doesn't seem like I can get any 1099-R or other paperwork from the receiving institution that made the mistake.  Any suggestions?  

[dmertz]

@gauchogirl , you'll probably need to submit a substitute Form 1099-R (Form 4852) replacing the zero in box 2a with the correct taxable amount (box 1 minus box 5).

[gauchogirl]

Thank you so much for the info.  I'll give that a try.   I knew there had to be a work-around but wasn't familiar with the 4852.  I appreciate your help.