457b to Roth IRA Rollover

[SamT7]

In 2024 I received a distribution from my 457b plan from Fidelity.  I converted this distribution (within 60 days) to a Roth IRA at Bank of America.  I received a W2 from Fidelity listing this distribution correctly as a nonqualified plan.  I did not receive any 1099R.  I have talked to two person from TurboTax "Expert Help" and they have been unable to tell me how to enter this into TurboTax.  It is my understanding that I need to report this on form 8606.

Can you please help with this.  Thank you.

[dmertz · Accepted solution]

Distributions from a nongovernmental 457(b) (a type of nonqualified plan) are not permitted to be converted to a Roth IRA.  Depositing these funds into a Roth IRA constitutes a regular Roth IRA contribution, not a rollover or Roth conversion, regardless of how the Roth IRA custodian reports the deposit on Form 5498.

It's likely that at least part of this regular Roth IRA contribution is an excess contribution that is subject to penalty unless corrected.  Enter the amount of this deposit under Deductions & Credits -> Traditional and Roth IRA contributions as a regular Roth IRA contribution.

Only Roth conversions from a traditional IRA are reportable on Form 8606.  What you did is not a Roth conversion.

[dmertz]

Also, the amount reported in box 1 of the W-2 is entirely taxable.  You must enter the W-2 as received.

[SamT7]

dmertz,

Thank you for this information.  I was unaware that all my distribution from my 457b ( nonprofit organization) could be rolled over to a Roth IRA. The amount was about $32,000.   How could I correct this without penalty? Again thank you for your expertise.

[dmertz · Accepted solution]

You would need to inform BofA that the amount deposited into the Roth IRA was ineligible for rollover and that you need to obtain a return of excess contribution.  BofA will distribute that along with any attributable earnings.

I assume that the deposit into the Roth IRA was made in 2024.  They will issue a code JP 2025 Form 1099-R near the end of January next year reporting the amount of earnings that must be included on your 2024 tax return.  In 2024 TurboTax you can indicate under Deductions & Credits that you made a regular $32,000 Roth IRA contribution.  When TurboTax indicates an excess contribution you'll tell TurboTax that you had (or will have) the $32,000 contribution (or less if you want and are eligible to treat part of this as a 2024 Roth IRA contribution) removed before the due date of your 2024 tax return.

And just to confirm that distributions from non-governmental 457(b) plans are not eligible for rollover (a Roth conversion is technically a type of rollover), see this IRS webpage, third from the bottom:

https://www.irs.gov/retirement-plans/comparison-of-tax-exempt-457b-plans-and-governmental-457b-plans

[SamT7]

dmertz,

Thanks again for your clear, concise response.

Yes this was a contribution for year 2024.  Since I am over 50, I assume that I can leave $8000 in the Roth IRA with BOA and have the remainder removed.   I also think that I would be able to contribute $8000 to a Roth IRA for my nonworking ,over 50 spouse for 2024.  I will follow the instructions to enter this into TurboTax.

Again, thanks for your response.  You have helped me so much.

[dmertz]

As long as you has sufficient compensation in 2024 from working to support Roth IRA contributions and your modified AGI for the purpose is low enough to permit the Roth IRA contribution, yes, you and your spouse are eligible to make Roth IRA contributions.  Any Roth IRA contribution made on behalf of your spouse needs to be made to your spouse's Roth IRA, not to yours.  You would still need to obtain are turn of $24,000 from your Roth IRA.

Ideally you would get BofA to reclassify the deposit as being a regular contribution when they report on Form 5498.  This would substantiate that the $8,000 was a contribution for 2024 and that the $24,000 was eligible to be distributed as a return of contribution.  That might not happen, so it's important to provide all o fthe details in the explanation statement that TurboTax will prompt you to prepare when you indicate that you are obtaining a return of contribution after entering the $32,000 as a regular Roth IRA contribution.

[SamT7]

dmertz,

I am retired but I assume that the $32,000 distribution that I received from my nongovernmental 457b  deferred compensation plan would count as income for the purpose of qualifying me for contribution to a Roth IRA?

Thanks again for helping this somewhat compromised senior citizen.

[dmertz · Accepted solution]

The deferred compensation that you received from the 457(b) is not compensation that will support an IRA contribution.  Only compensation earned in 2024 would support such a contribution for 2024.  It sounds like you are ineligible to make a Roth IRA contribution, so the entire $32,000 would need to be returned by obtaining an explicit return of contribution (not a regular distribution) by the due date of your 2024 tax return, including extensions.