Solved

distribution from traditional 401k with one employer, direct rollover of distribution to roth 401K at new employer

Forum|Forum|1 year ago
March 30, 2025
2 replies
0 views

Received 1099R from employer #1 for total distribution from traditional 401K (distribution code G). Did direct rollover to Roth 401K at employer #2. IRA/SEP/SIMPLE box not checked. Answered yes rolled from 401K to Roth 401K. Not sure how to answer whether or not I made after tax contributions (have answered both ways but don't see that it changes anything). Problem is that the amount of distribution is not showing up as taxable on my 1040. Only shows up in 5A. 5B is 0. Shouldn't 5B be the same as 5A, so that the amount is taxed since it is going into a Roth 401K. How do I get Turbo Tax to show this? Am I doing something wrong?

TurboTax Deluxe Online

Best answer by dmertz

Such a rollover is not permitted. A distribution from the traditional account in one 401(k) is only permitted to be deposited into the traditional account in the other 401(k). Rollovers from the traditional account in one 401(k) are only permitted to be rolled over to the Roth account in the same 401(k) plan, a so-called In-plan Roth Rollover (IRR).

Because the such an out-of-plan taxable Roth rollover is not permitted, the Form 1099-R from the old 401(k) correctly shows a nontaxable direct rollover to the traditional account in the receiving 401(k).

Ignoring the fact that an out-of-plan taxable Roth rollover is not permitted, you might consider reporting it as if it was done in-plan. To do so you would have to enter a substitute Form 1099-R (Form 4852) with the taxable amount entered into box 2a accompanied by an explanation, but the explanation would likely tip the IRS off that you did an impermissible rollover.

The proper way to have done this would have been to either do an IRR in the old 401(k) (plan permitting) and then do a Roth 401(k)-to-Roth 401(k) rollover, do a rollover from the traditional account in the old plan to the traditional account in the new plan, followed by an IRR in the new plan. You could have also directed the old plan to do a taxable direct rollover to a Roth IRA, in which case the Form 1099-R from the old plan would have the taxable amount in box 2a.

M

MinhT1

You have to indicate in TurboTax that you moved the money to a Roth 401(k).

Enter your form 1099-R by following these steps:

In TurboTax Online, open your tax return
Click on Federal in the left-hand column, then on Wages & Income
Navigate to the list of income categories
Locate the section Retirement Plans and Social Security and click on the arrow on the right
Click Start next to IRAs, 401(k), Pension Plan Withdrawals (1099-R).
Enter your form 1099-R and follow the interview
When you arrive to the page Did you move the money from a 401(k) to a Roth 401(k)?, click on the radio button Yes, I moved the money to a Roth 401(k), Roth 403(b) or a 457(b) plan and Click Continue
The rollover will then be taxed.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

C

collegeparentAuthor

I received another answer that this type of rollover is not allowed?!

D

dmertz

Employee

See Note 8 of Table 1-4 in IRS Pub 590-A:

https://www.irs.gov/publications/p590a#en_US_2024_publink1000270086

Paragraph 402A(c)(4) of the tax code is the paragraph that permits taxable rollovers to a designated Roth account. The restriction that it must be an IRR derives from paragraph 402A(c)(4)(B):

(B)Distributions to which paragraph applies
In the case of an applicable retirement plan which includes a qualified Roth contribution program, this paragraph shall apply to a distribution from such plan other than from a designated Roth account which is contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to the designated Roth account maintained under such plan for the benefit of the individual to whom the distribution is made.

D

dmertzAnswer

Employee

Such a rollover is not permitted. A distribution from the traditional account in one 401(k) is only permitted to be deposited into the traditional account in the other 401(k). Rollovers from the traditional account in one 401(k) are only permitted to be rolled over to the Roth account in the same 401(k) plan, a so-called In-plan Roth Rollover (IRR).

Because the such an out-of-plan taxable Roth rollover is not permitted, the Form 1099-R from the old 401(k) correctly shows a nontaxable direct rollover to the traditional account in the receiving 401(k).

Ignoring the fact that an out-of-plan taxable Roth rollover is not permitted, you might consider reporting it as if it was done in-plan. To do so you would have to enter a substitute Form 1099-R (Form 4852) with the taxable amount entered into box 2a accompanied by an explanation, but the explanation would likely tip the IRS off that you did an impermissible rollover.

The proper way to have done this would have been to either do an IRR in the old 401(k) (plan permitting) and then do a Roth 401(k)-to-Roth 401(k) rollover, do a rollover from the traditional account in the old plan to the traditional account in the new plan, followed by an IRR in the new plan. You could have also directed the old plan to do a taxable direct rollover to a Roth IRA, in which case the Form 1099-R from the old plan would have the taxable amount in box 2a.