401K to 401K Roth conversion

[511788erinbognar]

I converted my 401K to a 401K Roth in 2020.  I entered the 1099-R with the code G that I received from my financial institution into Turbo tax. 

In 2020 I also contributed to a Roth IRA.   Turbo tax is indicating that I am not eligible to contribute to a Roth IRA and is including the taxable portion of the 401K to 401K Roth conversion in the MAGI calculation for Roth contribution eligibility.

I know that Traditional IRA to Roth IRA conversions do not impact your eligibility to contribute to a Roth IRA and that you fill out Form 8606 to document that calculation. 

Are inplan 401K to 401K Roth conversions supposed to impact your eligibility to contribute to a Roth IRA?

[AmyC]

No. As long as you are income eligible, a rollover should not affect your contribution. You stated code G, not H. Code G specifically states not to use Code G for a direct rollover from a designated Roth to a Roth. See page 16 of 1099-R instructions. I suggest you get a corrected form with code H, if that is accurate. Otherwise, perhaps something else is going on?

See Roth IRA contributions for more information.

[statz1964]

I know this thread is a year old, but having the same issue on my 2021 tax return.  The reply, however, appears to have mis-understood the situation. The 1099R was documenting the in-plan conversion from a Traditional 401k to a Roth 401k.  It wasn't documenting a Designated Roth [401k] to a Roth IRA as the reply appeared to reflect. 

I've also found that within Turbo Tax, you can keep the Distribution Code of G, and have the conversion not impact MAGI or ability to contribute to Roth IRA, if you answer the question following this entry as "No, this money didn't roll over to a designated Roth 401k or 403b account."  Instead, show the money having gone rolled over to a Roth IRA.  That wouldn't appear to be the correct answer, but it correctly reflects the taxes IF an in-plan conversion from a Traditional 401k to a Roth 401k doesn't affect the modified adjusted gross income (MAGI) (which would make sense since converting Traditional IRAs to Roth IRAs doesn't affect MAGI).  The question remains:

"Do in-plan conversions from a Traditional tax-deferred 401k to a Roth 401k affect your MAGI?"  (It's already firmly established that conversions of Traditional IRA to Roth IRAs do not affect MAGI.)

[MarilynG1]

Yes, a rollover from the traditional 401(k) to the Roth 401(k) would be taxable and affect MAGI. Is there an amount in Box 2 or is the Taxable amount not determined checked in Box 2b?

An in plan Traditional 401(k) to 401(k) Roth rollover *is* a conversion.

A conversion to a Roth has an impact on your taxes. Typically, most or all of the amount would be taxable.  A conversion of a Traditional IRA to a Roth IRA does affect MAGI.

Click this link for discussion on 401K to Roth 401K

Here's detail on Conversion you may find helpful.

This article on Calculating AGI/MAGI is also useful. 

[dmertz]

An In-plan Roth Rollover is not a Roth conversion and is not permitted to be excluded from MAGI for the purpose of a Roth IRA contribution.  Only Roth conversions (which, as defined by law, are from a traditional IRA to a Roth IRA) and rollovers from a qualified retirement plan to a Roth IRA are excluded from MAGI for this purpose.

[statz1964]

Thank you for clarifying the correct use of terminology.  Disappointing that these in-plan Roth Rollovers (Trad 401k to Roth 401k) are going to drive up my MAGI and disallow me from my annual Roth IRA contributions.  Oh well... I've learned something I didn't know about the tax code.  Appreciate it.

[statz1964]

Thanks for your reply. To answer your question, Box 2a does have an amount and the "Taxable Amount not determined" box is not checked. Your and dmertz replies, along with Turbo Tax results and a Vanguard blog I found, are all telling me the same thing (moving money from traditional 401k to roth 401k does increase MAGI, unlike a conversion from a traditional IRA to a roth IRA). I consider the issue resolved. Thanks again for your help.

[Suka1]

I converted my 401K to a 401K Roth in 2020.   The 1099-R came with the code G but the taxable amount as "0".

TurboxTax asked me couple of times to verify this value. Is this correct?

[dmertz]

Rollovers from a traditional 401(k) account to a designated Roth account in a 401(k) are required to be done in-plan, so it seems highly suspect that the 401(k) plan would report a zero taxable amount unless the full gross amount was after-tax and shown in box 5 of the Form 1099-R.  Was this rollover done in-plan or was it an impermissible rollover from a traditional 401(k) account in one plan to a designated Roth account in a different plan or did the 401(k) plan simply botch the Form 1099-R?

[Suka1]

My 401k account was funded with pre-tax dollars and it was in-plan rollover.

[dmertz]

In that case, ask the plan to correct the Form 1099-R to show the same amount in box 2a as is in box 1.

[Suka1]

Thank you very much for prompt response. Related question. If I use 2b same as in box 1, the AGI used for child tax credit (8812) goes up. is the roth converted amount used for child tax credit calculation?

[dmertz]

The taxable amount of your In-plan Roth Rollover adds to your AGI, so yes, this affects the amount that appears on line 1 of Form 8812.  If this additional income causes a change to the amount on Form 8812 line 10, this additional income can reduce the Child Tax Credit.

[Jameson94]

I have the exact same situation and the 401k provider (the ones with the baby in their recent commercial) claims that their 1099-R is correct with box 2a as $0.  In-plan rollover from pre-tax 401k to roth 401k in 2021.  And TurboTax shows 1040 box 5b as $0 even though I click the "this was a rollover from 401k to roth 401k" which I had assumed would correctly report it as taxable.  

Any new insights here? 

The provider isn't going to change the 1099-R, and my read of the instructions "https://www.irs.gov/instructions/i1099r#en_US_2022_publink[phone number removed]" tend to support their case, I think.

[dmertz]

If this was an In-plan Roth Rollover of pre-tax funds in a 401(k) to any kind off Roth account, the Form 1099-R with a 0 in box 2a is wrong.  If the plan will not correct the Form 1099-R, you'll need to prepare a substitute Form 1099-R (Form 4852) with the correct taxable amount in box 2a.  Preparing a substitute Form 1099-R in TurboTax will require that you print and mail your federal tax return.