Is it better to rollover a traditional 401K to a Rollover IRA first?

[syoung123]

Hello - I want to rollover a portion of my traditional 401K money to a Roth IRA.  A financial advisor told me for tax reporting, it would be better to rollover the entire 401K into a Rollover (traditional) IRA (which is non-taxable), then over time convert portions of the money in the Rollover IRA to a Roth IRA.  He said the recordkeeping would be simpler to show IRS the cost basis for each conversion.  However, in doing so, during the first year when I rollover the 401K into a Rollover IRA, and then convert a portion of it the Roth IRA, I would have 2 1099Rs, one for the rollover of 401K to a Rollover IRA, and one for the partial conversion of the money from the Rollover IRA to Roth.  It seems that if I just move a portion of money in my 401K to Roth each year, the cost basis would be whatever the rollover amount is in that year.  Not sure why the financial advisor said that it would be "cleaner" to mover all the 401K money into a Rollover IRA first, that move a portion to the Roth IRA each year.  Any thoughts or input?  Thank you.

[leeloo]

It depends on your financial situation, of which your advisor is probably aware. Since you will pay tax on the rollover to the Roth, you have to see if it makes sense to transfer in smaller chunks for less tax in any given year or if transferring the entire amount at one time will hurt you taxwise in that year.

[syoung123]

Hello, my question is related to the tax reporting and tax recordkeeping.  I am trying to figure out whether I should -

1.  Rollover a portion of my 401K directly to a Roth IRA over the years.  In doing so, I would have one 1099R (from the 401K administrator) and one 5498 (from the Roth IRA receiving custodian), and I wouldn't need to do a form 8606 to report the conversion from Rollover IRA to Roth.

2.  Rollover all the money 401K to a Rollover IRA, then from the Rollover IRA to a Roth IRA.  By doing this, I would have two 1099Rs (one from the 401K admin for the 401K rollover to Rollover IRA, and one from the Rollover IRA custodian for the converting of Rollover IRA to Roth), and two 5498s (one from the Rollover IRA recipient custodian and one from the Roth IRA recipient custodian); and I would need to do a form 8606 for the conversion of Rollover IRA to Roth IRA.

A financial advisor recommended to rollover the entire 401K to a Rollover IRA first (and I'll have to open a Rollover IRA account), then convert a portion of it to Roth over time.  He said it would be cleaner for tax reporting and recordkeeping.  I am not sure why it would be cleaner, or what the benefits are,  comparing to rolling over a portion of the 401K directly to Roth every year.  If I do the direct over from 401K to Roth, It would be just one step (401K -> Roth, vs 401K -> Rollover IRA -> Roth), I would only have one 1099R and one 5498, I would not need to do a form 8606 since it is a rollover (not converting from an IRA to Roth), and I would pay the tax for rolling over from 401K (tax deferred) to Roth as a taxable event.  Once it is done, the 5498 would show the amount rolled over the Roth IRA for recordkeeping.  So I am not seeing the benefits of doing the extra step by rolling over the 401K to a Rollover IRA first, then to Roth.  Any thoughts?  Thank you.