Reconciling 1099R to 5498

[craigvan]

I initiated a 401K rollover of both cash and stock hares to an IRA at another institution--a direct transfer.  The sending institution included the market value of the stock (plus the cash) on the 1099-R.  The receiving institution provided a Form 5498 with only the value of the cash.  They said because it was a direct transfer, or trustee-to-trustee, form 5498 does not report on the shares.  Are they both right?  Major question is will IRS flag the difference, and think some funds were withdrawn (even though Box 7 shows code G)?  And btw, the difference is larger than the same day value of the shares, since it took almost 2 months longer to transfer the shares after the cash was transferred, and the value of the stock went down a lot.

[dmertz]

For a rollover to an IRA, the IRA custodian typically includes in box 2 of the From 5498 the FMV of the shares on the date that the shares are placed in the IRA.  As in your case, it usually happens that the value of these shares included in box 2 is different than the value of the shares distributed from the 401(k) because of the change in market value between these two events.  Even though the share price may be different on the date that the shares are placed in the IRA than on the date that the shares were distributed from the 401(k), the reportable value of the shares rolled over is the value on the date of distribution, not the value on the date that the shares were placed on the IRA.

If your tax return gets examined, the IRS examiner might question the discrepancy since nothing on the Form 1099-R or Form 5498 explains that the difference is due to a change in the share price.  In that case you'll need to provide the explanation.  You also have the code-G indicating a direct rollover that would support your explanation indicating that the shares were placed in the IRA.

There's a similar problem where funds are directly rolled over from one 401(k) plan to another because there is no reporting requirement for the receiving 401(k) like Form 5498.  The IRS sometimes questions these rollovers, but usually only indirect rollovers reported with code 1, 2 or 7 since they are more likely to trust that a rollover reported with code G was completed.

You can include an explanation with your tax return, but I don't think that there is a good way to do that when e-filing with TurboTax.

[craigvan]

Thank you, but the situation is more significant than just the difference in market value of the shares.  The receiving IRA custodian did not provide any (eg. zero) value to the 70 shares transferred on the 5498.  They only value shown is that of the cash transferred.  They claim a direct transfer of shares (in-kind transfer) between trustee-to-trustee of retirement accounts has no value shown on the 5498.  The 401K custodian sending the shares disagrees, and thus included the value of the shares on their 1099-R.  Who is correct?

[dmertz]

The receiving IRA custodian is supposed to include in box 2 of From 5498 the value of the shares on the date they are placed in the IRA.  The instructions for Form 5498 say:

For the rollover of property, enter the FMV of the property on the date you receive it.  This value may be different from the value of the property on the date it was distributed to the participant.

The only time this might be a problem for the custodian is if the shares do not have a readily ascertainable value. 

[craigvan]

Thank you very much.  I will go back to them.  Both are amongst the largest custodians in the US, and the shares of stock of a large drug company.  Unfortunately, the share price dropped 17% as it took 52 more days to transfer the 70 shares vs the cash---which is also crazy.  At least if the receiving custodian agrees to put in the value on day of receipt, the difference won't be as great.  Again, thanks again.

[dmertz]

Did the rollover of the shares not complete until 2023?  If that's the case, the share value will appear in box 2 of your 2023 Form 5498 (called an "outstanding rollover") even though the rollover is reportable on your 2022 tax return.

[craigvan]

No, both in 2022.  Aug  22 cash arrived and shares arrived on Oct 12.  I used to work in banking/brokerage and I've never known an ACAT transfer to take so long.  Someone messed up.