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Rollover prev 401K (pre-tax) to Designated Roth (like 401k or 457b)

Hi,

 

Situation: I had a 401k (pre-tax) from my prev employer and made some payroll contributions while there. I changed jobs and opened another retirement account with them but it's a Roth account and I make payroll contributions.

 

In 2020 I completed a rollover of my prev 401k (pre-tax) to my current 401k (Roth). How do I report this on my fed income taxes? Is my current account custodian suppose to provide me with a form to report that amount I transferred? I did not get anything for it.

 

My understanding is that I have not paid taxes on the payroll contributions made to my prev employer 401k (pretax) so since I transferred to a roth (post-tax) account I need to pay income taxes on the portion that I have yet to pay taxes on (the rolled over amount). Is this correct? If so, how am I suppose to go about doing this?

 

Also: what is recharacterization and what does nondetectable contribution mean? Thanks. 

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1 Best answer

Accepted Solutions
dmertz
Level 15

Rollover prev 401K (pre-tax) to Designated Roth (like 401k or 457b)

@macuser_22 is correct.  Rollover from the traditional 401(k) account in one employer's plan directly to the designated Roth account in a different employer's plan is not permitted.  The new employer's plan should not have permitted this.

 

What should have happened is a rollover from the traditional account in the old employer's plan to the traditional account in the new employer's plan, reported on a code G Form 1099-R with $0 in box 2a, then an In-plan Roth Rollover in the new employer's plan, reported with a separate code G Form 1099-R with the taxable amount in box 2a (in this case, apparently the entire box 1 amount).

 

Each of these Forms 1099-R would then be entered into TurboTax.  For the second, taxable one you would indicate that the rollover was to a Roth 401(k) account.

 

If the distribution from the traditional account in the old employer's plan was truly deposited directly into the Roth account in the new employer's plan, it seems that this would be a failed rollover that would need to be removed from the Roth account as an excess contribution, the original distribution from the the traditional account in the old employer's plan rolled over to the traditional account in the new employers plan under IRS Rev. Proc. 2016-47 self-certifying that the late rollover to the traditional account would qualify for a waiver of the 60-day rollover deadline (which applies because failure of the original rollover causes it to cease to be a direct rollover), and then perform an In-plan Roth Rollover (which, if done in 2021, would be taxable on your 2021 tax return).

 

There is no such thing as a recharacterization involving a 401(k).  There is no such thing as a nondeductible contribution to a 401(k).  Those terms apply to IRAs, not to 401(k)s.

View solution in original post

3 Replies

Rollover prev 401K (pre-tax) to Designated Roth (like 401k or 457b)


@themaster wrote:

Hi,

 

Situation: I had a 401k (pre-tax) from my prev employer and made some payroll contributions while there. I changed jobs and opened another retirement account with them but it's a Roth account and I make payroll contributions.

 

In 2020 I completed a rollover of my prev 401k (pre-tax) to my current 401k (Roth). How do I report this on my fed income taxes? Is my current account custodian suppose to provide me with a form to report that amount I transferred? I did not get anything for it.

 

My understanding is that I have not paid taxes on the payroll contributions made to my prev employer 401k (pretax) so since I transferred to a roth (post-tax) account I need to pay income taxes on the portion that I have yet to pay taxes on (the rolled over amount). Is this correct? If so, how am I suppose to go about doing this?

 

Also: what is recharacterization and what does nondetectable contribution mean? Thanks. 


You should have received one or more 1099-R's reporting that no later then Jan 31, 2021.

 

However, I do not believe you can convert a 401(k) plan from one employer to a 401(k) Roth with a different employer.

 

You can roll a 401(k) to a 401(k).  and a 401(k) Roth to a 401(k) Roth but any conversions from a 401(k) to a 401(k) Roth can only be "in-plan" with the same employer.

 

[@dmertz  can you weigh in - is that correct?]

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
dmertz
Level 15

Rollover prev 401K (pre-tax) to Designated Roth (like 401k or 457b)

@macuser_22 is correct.  Rollover from the traditional 401(k) account in one employer's plan directly to the designated Roth account in a different employer's plan is not permitted.  The new employer's plan should not have permitted this.

 

What should have happened is a rollover from the traditional account in the old employer's plan to the traditional account in the new employer's plan, reported on a code G Form 1099-R with $0 in box 2a, then an In-plan Roth Rollover in the new employer's plan, reported with a separate code G Form 1099-R with the taxable amount in box 2a (in this case, apparently the entire box 1 amount).

 

Each of these Forms 1099-R would then be entered into TurboTax.  For the second, taxable one you would indicate that the rollover was to a Roth 401(k) account.

 

If the distribution from the traditional account in the old employer's plan was truly deposited directly into the Roth account in the new employer's plan, it seems that this would be a failed rollover that would need to be removed from the Roth account as an excess contribution, the original distribution from the the traditional account in the old employer's plan rolled over to the traditional account in the new employers plan under IRS Rev. Proc. 2016-47 self-certifying that the late rollover to the traditional account would qualify for a waiver of the 60-day rollover deadline (which applies because failure of the original rollover causes it to cease to be a direct rollover), and then perform an In-plan Roth Rollover (which, if done in 2021, would be taxable on your 2021 tax return).

 

There is no such thing as a recharacterization involving a 401(k).  There is no such thing as a nondeductible contribution to a 401(k).  Those terms apply to IRAs, not to 401(k)s.

Rollover prev 401K (pre-tax) to Designated Roth (like 401k or 457b)

Thank you both very much for the help! @dmertz @macuser_22 

 

 

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