Roth401K rolled over to "Rollover IRA" (by mistake) then took distribution in following year.

[dp401]

Hi, 

It would be great help if I can get some advice on "how I can avoid paying double tax on After-tax money"? 

- I Rolled over Roth 401K by mistake in "Rollover IRA" account (which is Traditional IRA) in 2023.

- I took distribution from that "Rollover IRA" in 2024. Completely unaware of the account type.

- Now it triggered 1099-R with distribution code "1" (which means I owe taxes).

Technically the money I withdrawn was After-tax $$. I didn't realize that I made a mistake by opening wrong type of account at first step until I was preparing to file 2024 Tax returns.

FYI - I withdrawn $$ only which was contributed by me to Roth 401K, and did not touch the Gains. 

I contacted my "Rollover IRA" account holding company if they can help do something about this, unfortunately they can't do anything at their end since account I opened with them was back in 2023 which is long time ago, though they advice to contact Tax advisor to get help to resolve this.  

Please advice how to avoid double tax on this and file taxes for 2024.

Thank You.

[DavidD66]

Distributions from a Roth 401(k) are not permitted to be rolled over to a traditional IRA.  What you did was take a distribution from your Roth 401(k) the earnings portion of which was actually taxable.  You then made a contribution to your traditional IRA for the amount of the distribution.  It was not a rollover.

Since you did this in 2023 I don't believe there is any way to correct it so that you accomplish what you intended.  You can reach out to the Traditional IRA custodian and explain that instead of a direct rollover what you did constituted a regular contribution, not a rollover, and see if they will reclassify the money you withdrew in excess of any allowable contribution as as a return of excess contribution.  

The only other thing you can do to minimize the tax that you're going to have to pay on your distribution is to enter the amount of your Roth 401(k) basis as after tax contributions to your Traditional IRA.  There is a question after you enter your Form 1099-R about prior year non-deductible contributions.  That will reduce the amount of that is taxable.