An old employer terminated a 401k plan and did a direct rollover to a Roth IRA (90%) and to traditional IRA (10%). 1099R has BG in box 7 for Roth IRA. Should it be H?

[cozmo128bp]

The traditional IRA rollover code of G is correct.  The conversion was done in 2023 and I am well past 591/2 years and the 401k was more than 5 years old.  The 401K administrator insists BG code is correct... but I am not sure.   

[dmertz]

You are correct, code H is required for the rollover from the Roth 401(k) to the Roth IRA.

Code BG is only to be used for a rollover from a Roth 401(k) to another Roth 401(k).

The instructions for Form 1099-R explicitly state:

Note.  Do not use Code G for a direct rollover from a designated Roth account to a Roth IRA. Use Code H.

and:

Use Code B for a distribution from a designated Roth account. But use Code E for a section 415 distribution under EPCRS (see Code E) or Code H for a direct rollover to a Roth IRA.

https://www.irs.gov/pub/irs-prior/i1099r--2023.pdf

[DavidD66]

dmertz is correct. I agree that Code H would be the correct code to use.  Code B is  "for a distribution from a designated Roth account."  Code G is "for a direct rollover from a qualified plan...".  So, while it doesn't seem the be the correct coding, it appears that it will work.  As long as the accepting custodian is OK with it there shouldn't be a problem.

[cozmo128bp]

Thank you dmertz 15 for your response.  What is making this more difficult is that 2 tax advisors from a large tax prep outfit and the 401k administer indicate BG should be used and not H. The reason they give is that the original 401K had 2 components (A Roth 401K portion and a before tax portion for matching and employee retention).  If there was only a Roth portion to this 401K, then H would be used.  What is interesting is that when I type BG into the Turbo software....the 1040 shows a rollover with no exceptions after the review and $0 taxes owed.  The software accepts it as a rollover.   I'm still with you on H... which is why I posted the question.   This non-accountant is very confused and not sure what direction to take.

[cozmo128bp]

Thank you DavidD66 for your response.  You may be correct if it works and the custodian is ok.  I'll give you the same response I provided dmertz.  What is making this more difficult is that 2 tax advisors from a large tax prep outfit and the 401k administer indicate BG should be used and not H. The reason they give is that the original 401K had 2 components (A Roth 401K portion and a before tax portion for matching and employee retention).  If there was only a Roth portion to this 401K, then H would be used.  What is interesting is that when I type BG into the Turbo software....the 1040 shows a rollover with no exceptions after the review and $0 taxes owed.  The software accepts it as a rollover.   I'm still with you on H... which is why I posted the question.   This non-accountant is very confused and not sure what direction to take.

[dmertz]

The distribution from the traditional account in the 401(k) and from the designated Roth account in the 401(k) are entirely independent of each other even though they might be made simultaneously.  Nowhere do the instructions for Form 1099-R say that one influences the reporting of the other.  The instruction for code G in particular is quite clear that code G is not to be used for a rollover from a designated Roth account to a Roth IRA.  There are no less than five places in the instructions for Form 1099-R that say to use code H for this rollover.

Even though the taxable result is the same, TurboTax uses the distinction to determine if the rollover adds basis to the individual's Roth IRAs tracked by TurboTax.

[dmertz]

With no tax withholding, the details of the form are not included in your filed tax return.  Whether or not the payer corrects this incorrectly coded Form 1099-R, I would select the correct code H in TurboTax's code-selection box so that TurboTax can appropriately treat the rollover as having been made to a Roth IRA.  The IRS will be unaware that you made this code substitution in TurboTax.

[cozmo128bp]

Thanks again for your insight.  When a Turbo Tax schedule says "For your Records" I have to assume its for your benefit and does not get filed.  The other way I can go... is to file a substitute 1099 R based on what I think the code should be (and why I think it so).  According to Turbo Tax, substitute 1099R's can be  used when you don't get a 1099R or when you think the 1099R is wrong.  I guess the 401K administrator and the IRS then work it out?