I made error when I converted 401k to IRA. I meant to convert it to traditional IRA but instead converted to Roth IRA. The conversion occurred in April '16. Any solution?

[eishi13]

I made a mistake when I converted my previous work's 401k to IRA when my old company was acquired by my current company. I meant to convert it to traditional IRA, but I accidentally converted to Roth IRA. According to my Rollover IRA account, the conversion occurred in April 2016 (Vanguard received the check in April 2016). I assume that it's too late to recharacterize the Roth IRA to traditional IRA.  How can I fix this problem? Can I simply amend my tax filing and pay the tax I owe due to 401K to Roth IRA conversion?

[dmertz · Accepted solution]

There is no undoing the consequence of the rollover being to a Roth IRA.  If you did not report the rollover from the 401(k) to the Roth IRA as taxable on your 2016 tax return you must amend your 2016 tax return to do so unless the IRS has already caught the error and billed you for the taxes due.

If not already reported as taxable on your 2016 tax return, presumably the 401(k) plan issued a code G Form 1099-R with $0 in box 2a, thinking that the rollover was to a traditional IRA.  When using 2016 TurboTax to amend your 2016 tax return you'll need to change the amount in box 2a to be the same as the amount in box 1 if you had no basis in after-tax money in the 401(k) and provide explanation that the rollover was a taxable rollover to a Roth IRA, not a nontaxable rollover to a traditional IRA, despite what was reported in the 2016 Form 1099-R.  (If the code in box 7 of the 2016 Form 1099-R was code 1, 2 or 7, you'll just need to change your answer to 2016 TurboTax's question asking what you did with the money.)

[fanfare]

DId you file as a Rollover for 2016?.

It's unlikely that Vanguard would correct your mistake after so much time has passed.

[Critter]

It is WAYYYY too  late to make any changes.

[coquitopelon]

Hello this is Adan, could you please help me? That is exactly what I want to do.  I have not work since March, I make about $25,000 so far.  So I want to convert as much as I can from my 401k to a roth ira since I will have no issues with taxes. Please if somebody can give me more information I feel like this is an opportunity for me.

[dmertz]

Adan, unless you waive the requirement, the 401(k) plan administrator is required by law to provide you with information regarding your rollover options.  Contact the plan administrator.

[fanfare]

you need to do a trial tax return with all your income and circumstances and slowly bump your conversion amount until the tax appears.

You can do this with the 2020 CD/Download version when it is available.

you can do it now with the 2019 CD/Download version and be close enough if you already have it .

Be sure to leave time for the custodian to process your request before Dec 31.

[coquitopelon]

Thanks for your help again.  I do have turbo the luxe2019 and it only asks if  I contribute any money to my Roth Ira.  Then it moves on, as I mentioned before I think I do not have to pay taxis this year can I just take the risk?  Or shall I hire somebody to help me out, since to me that this is the year to do it.  Please help, Adan.

[VolvoGirl]

You need to enter a 1099R for the conversion.  But there is a code you would need for box 7.  Not sure what code you would put in to test.  If you actually do it then you will get the 1099R by Jan 31 from the 401K plan.  

Enter a 1099R under

Federal Taxes

Wages & Income

Then scroll way down to Retirement Plans and Social Security,

Then IRA, 401(k), Pension Plans (1099R) - click Start or Revisit

[fanfare]

yes you must make up an imaginary 1099-R and indicate to TurboTax that you are converting the amount of the distribution to a Roth.

just doing it by guessing is not a wise move if you want to avoid tax.

I think code 7 will work for this purpose.

I don't think your age matters.

[coquitopelon]

Thank you all of you, I appreciate it, Adan.