Roth 457 rollover to Roth IRA. 1099-R question on box 5.

[RayG395]

I rolled over my Roth 457 to a Roth IRA last year. I had money taken out of my paycheck after taxes to contribute to the Roth 457 during my contributions.

I received a 1099-R and the only thing filled out is the gross distribution amount in box 1 and distribution code G in box 7. I am confused why box 5 is left blank. Is this box for contributions that would have been made outside of my paycheck from me?

IRS instructions and TurboTax explain it in a way that seems like my contributions amount should be in box 5.

[dmertz]

The code G (combined with no other code) in box 7 indicates that the distribution came from the traditional account in the 457(b), not from a designated Roth account in the 457(b).  Perhaps this Form 1099-R is reporting a distribution of employer matching of profit-sharing contributions and earnings thereon, which would explain why nothing is present in box 5.

A rollover from the designated Roth account in the 457(b) to a Roth IRA would have been reported with code H in box 7 of a separate Form 1099-R.  If you received no such form, perhaps any money you had in a designated Roth account in the 457(b) is still in the designated Roth account in the 457(b).  Either that or the money was taken out you pay pre-tax and deposited into the traditional account in the 457(b) despite your wishes.

[RayG395]

The funds were certainly in a Roth 457(b) and it were definitely rolled over into a Roth IRA. The money is now at another financial institution and the account is defined as a Roth IRA. 

Not sure I understand your last sentence. 

[dmertz]

In the absence of a code-H Form 1099-R, either the 457(b) administrator messed up the reporting or you had no distribution from a designated Roth account according to them.  The Form 1099-R that you have that has only code G in box 7 reports a distribution from the traditional account in the 457(b).

[RayG395]

Ok. Let's assume the administrator reported it incorrectly. I am preparing an email to them. If it was a direct rollover from a Roth 457(b) to a Roth IRA, then would my total after-tax contributions to the account over the years need listed in box 5? 

[JulieS]

Yes, Roth contributions are shown in box 5 of Form 1099-R, in addition to a few other items.

The IRS instructions for preparing this form say:

"Enter the employee's contributions, designated Roth contributions, or insurance premiums that the employee may recover tax free this year (even if they exceed the box 1 amount). The entry in box 5 may include any of the following: (a) designated Roth contributions or contributions actually made on behalf of the employee over the years under the plan that were required to be included in the income of the employee when contributed (after-tax contributions)..." 

- IRS instructions for Form 1099-R.

[dmertz]

Yes, a well-prepared code-H Form 1099-R will have in box 5 the amount of contribution basis that transfers to the Roth IRA.  Regardless of what is in box 5, the taxable amount in box 2a of a code H Form 1099-R must be zero, so the rollover will be nontaxable no matter what is in box 5.  The amount shown in box 5 documents the amount that would be included on line 22 of Form 8606 should Part III of that form be needed to report a nonqualified Roth IRA distribution now or in the future.

[RayG395]

My previous employer got back to me and said the following: The reason they used code G is because our 457 Roth account qualifies as a “governmental section 457(b) plan”, designated as a 457(b) Roth. 

Is this correct? 

[dmertz]

Code G by itself is only to be used for direct rollovers from the traditional account in the 457(b).  A direct rollover form the designated Roth account in the 457(b) to a Roth IRA is required to be reported with code H.  Any other distribution from the designated Roth account is required to include code B in box 7.  In other words, a Form 1099-R for any distribution from the designated Roth account must include either code H or code B in box 7.  (Codes G and B together in box 7 would be used to report a direct rollover from the designated Roth account in one employers plan to the designated Roth account in another employer's plan, not to a Roth IRA.)

[RayG395]

Ok. I originally called my financial advisor company who held the funds, and they spoke to their trust company that they contract with to file their taxes, they all disagreed that the form was incorrect and directed me to my employer. My employer said they do not handle 1099s or report these accounts to the IRS. I called the "trust company" and they referred me back to the financial advisor company who held the funds and said they are the ones who can make 1099 corrections. 

I have now opened a case with the company who held the funds and hoping they resolve it. If they continue to refuse that the 1099 was filed incorrectly, what is my next course of action? 

[dmertz]

I assume that the taxable amount in box 2a is zero and that box 2b Taxable amount not determined is not marked.

Ask them how they are reconciling their position with instructions for Form 1099-R where for code G they say, "Note. Do not use Code G for a direct rollover from a designated Roth account to a Roth IRA.  Use Code H."  They'll either have to say that they should be using code H, that the distribution was not from a designated Roth account (despite your assertion that it was) or that they refuse to follow the IRS instructions.

On your tax return, the main thing is that the reporting on Form 1040 lines 5a and 5b are correct, which will be the same for either code G or code H.  However, there is no way to enter this Form 1099-R with code G in a way that will cause TurboTax to correctly record your basis in Roth IRA contributions on its IRA Information Worksheet.  You can get the desired result on both the tax return and on the IRA Information Worksheet by just changing the code from G to H.  There is a slight risk that without submitting a substitute Form 1099-R with code H in box 7 instead of code G the IRS could detect a problem if they do an extensive audit, but that seems unlikely.

[RayG395]

Ok. You are correct. There is no amount listed in 2a and 2b is not checked. 

They have escalated the concern to their correct department and I hope to hear back next week.