Dividends on 401K to Roth 401K rollover conversion

[mariecj]

In 2023 I did an in-plan 401K to Roth 401K conversion. There was a small amount of after tax money in the 401K so I rolled it over first. The 1099-R from my former employer says that all the dividends from the Roth 401K were taxable. I have two questions: 1. Though the 401K was started in 1998, is 2023 considered to be Year 1 for the Roth 401K in **TurboTax** (it is the first year for IRS) even though it ISN'T the first year I received income from the payer? (I received 1099-R forms from the payer for a decade for the 401K). 2. I assume that the dividends are taxable because the 5-year period is not yet met but are they still taxable in full as the 1099-R says even though some of those dividends are on after-tax money rolled over to the Roth 401K? How do I indicate that some of this was income from after-tax money or subtract the relevant amount  of dividend (and explain)? (Note: I am over 60 years old.)

[dmertz · Accepted solution]

If this was the first money that went into the designated Roth account in the plan, the 5-year period begins on January 1, 2023.  Until the 5-year period has been met (and you have reached age 59½, which you have), any distribution from the designated Roth account is a proportionate mix of nontaxable conversion basis and taxable earnings.

The plan is responsible for reporting the correct taxable amount in box 2a of the Form 1099-R and the nontaxable amount in box 5.   (I assume that the Form 1099-R has code 7B in box 7.)

You would also have received a code G Form 1099-R that reports the In-plan Roth Rollover that you must report on your tax return.

[SirHarveyPuca]

You state: "The 1099-R from my former employer says that all the dividends from the Roth 401K were taxable."  If the "dividends" you refer to are the amount of 401(k) "after tax" money rolled into a Roth account in the same 401(k) plan -MINUS- your basis (the "after tax" amount you contributed), then the 1099-R taxable amount looks to be correct.  The above "after tax" contributions to a traditional (non-Roth) 401(k) are non-taxable when rolled over to a Roth account in the same 401(k) plan, whereas any growth in the "after tax" account will become taxable at roll over.