Form 1099R In-plan roth rollover

[amyonghwee]

I received a Form1099R with code G from my company's in-plan (after-tax) roth rollover participation. After I entered all the entries for 1099-R, it asks me to select

- Yes. this money rolled over to a designated roth 401k or 403b account

- No this money didn't roll over to a designated roth 401K or 403b account

I think I should select   "No this money didn't roll over...."  but wish for feedback on this.

[hbl3973]

amyonghwee,

The IRS says in the instructions for Form 1099-R:

"Use Code G for a direct rollover from a qualified plan, a section 403(b) plan, or a governmental section 457(b) plan to an eligible retirement plan (another qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA). See Direct Rollovers, earlier. Also, use Code G for a direct payment from an IRA to an accepting employer plan, and for IRRs that are direct rollovers.
Note. Do not use Code G for a direct rollover from a designated Roth account to a Roth IRA. Use Code H.

This says there are two scenarios under which you would have gotten that 1099-R with code G.  Your description isn't clearly telling me where the money originated and where it was deposited, nor whether the the receiving account was an employer Roth plan.  Do you mean that you converted, say, a regular 401K plan to a Roth 401K plan?  My wife did this some year ago and, of course, paid the tax due as a result.   

[dmertz · Accepted solution]

You must answer "Yes. this money rolled over to a designated roth 401k or 403b account."  "Yes" is the correct answer to this question for any IRR (even in a 457(b) or the federal TSP); an In-plan Roth Rollover is indeed a rollover from the traditional account to the designated Roth account in the same plan.

[amyonghwee]

Thanks dmertz!

Regarding my company Charles Schwab IRR, the amount of contribution is directly deducted from my pay check.

Next clarification:

Did you make any after-tax contribution to your 401K ...? These would be contributions you made into the plan yourself, rather than being made by your company on your behalf. 

- Yes I made after-tax contributions  ....

- No I did not make after tax contributions....

I believe the answer is "No .........". Pls advise. Thanks

[dmertz · Accepted solution]

An IRR comes from the traditional account in your 401(k), not from your paycheck.  The contributions from your paycheck go directly to either your traditional or designated Roth account in the 401(k).

Regular elective deferrals to your traditional account in the 401(k) are pre-tax, not after-tax.  If you had any basis in after-tax contributions to the traditional account in the 401(k), that would have been reflected in an amount in box 5 of the Form 1099-R and would have corresponding reduced the amount that the payer reported in box 2a.  If the amount in box 2a is the same as in box 1, box 2b Taxable amount not determined is not marked and there is no amount shown in box 5, the plan believes that you have made no after-tax contributions and you probably should believe that too.

[srr]

I disagree with dmertz's answer.

I believe the answer is Yes.

Recently many companies (and the broker such as fidelity managing the 401K) have have started to offer AFTER_TAX contributions to the 401K which as converted each time the contribution is made as "in-plan conversion" to the roth of same plan.  IF you for example contributed say 20K pre-tax and your employer contributed 2K as a match  then you can contribute up to total of 66K. So in my example you can contribute 66-22=44K of AFTER_TAX - this amount is rolled over to the roth on each and every contribution before the money has chance to earn any income.

So the answer to first question that turbo tax asks is Yes (I agree with what dmertz said) but i believe the answer to the 2nd question is also yes. If it is tradition rollover then the answer is NO (since the original money is after-tax) while for this new kinds of in-plan conversion the answer is YES. I am 90% sure but not 100%. It would be good if turbo tax has a help button on this part of app to help folks differentiate and answer correctly.

[srr]

Dmertz,

  I replied to the question you had answered - i disagreed with you answer (an 90% sure but not 100%) could you please double check into this - i answer yes to both questions and turbo tax did not increase or decrease or increase the tax due.

[dmertz]

I addressed all of this accurately in my precious reply.  "Elective deferrals" in the traditional 401(k) account are always pre-tax money taken from your pay and are excluded from box 1 of your W-2.  Earnings in the traditional account are also pre-tax.  If the plan permits, you can also make after-tax contributions to the 401(k) from your pay, money on which you are taxed and is not excluded from box 1 of your W-2, but these after-tax contributions are not elective deferrals.

If the plan allows after-tax contributions, these are kept in a separate sub-account of the traditional 401(k) account.  An In-plan Roth Rollover can be done on just this sub-account, independent of the other funds in the traditional 401(k) account, and if done immediately will consist entirely of the nontaxable after-tax funds.  The result will be that the amount will be included in boxes 1 and 5 of the Form 1099-R and box 2a will contain a zero.  This is the so-called Mega Backdoor Roth which, @srr , is apparently what you have been doing.

So the answer to TurboTax's question that asks if the amount rolled over included after-tax funds depends on the  particular circumstances of the In-plan Roth Rollover.  Nowhere did I say otherwise.

[srr]

Thanks for the clarification.

SO for the Mega Backdoor (ie inplan conversion of after-tax contributions that I refereed to) one would answer Yes and Yes to the two questions mentioned in this thread.

thanks

[dmertz]

@srr , that's correct.  In your case you did an IRR and you had after-tax money in the traditional 401(k).