Reverse Rollover + Backdoor Roth in Same Year: How to Report

Forum|Forum|6 years ago
February 19, 2020
2 replies
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Hi all,

This year, I performed the following (in this order, all within 2019):

Reverse rollover of all funds in a Traditional IRA into my employer Traditional 401(k), resulting in $0 balance in the Traditional IRA (apparently will not receive 1099-R)
Non-deductible contributions into Traditional IRA for tax year 2018 and 2019 (reported the 2018 tax year contribution already with my 2018 tax return)
Traditional IRA to Roth IRA conversion (completed a few days after step 2; received 1099-R)

I used this very helpful article to properly enter my Backdoor Roth (steps 2 and 3 above) into Turbotax, and I'm pretty sure it's done correctly because I have taxable income of only a few dollars (the investment gain over a few days) as a result.

Question: The article linked above does not describe how to properly report step 1, and my brokerage (Betterment) did not issue a 1099-R for this reverse-rollover (reasoning that they don't need to because it was a direct transfer and is therefore not taxable). Is anyone able to provide step-by-step instructions for reporting the reverse rollover properly in TurboTax? I imagine I'll need to act as if I'm reporting another 1099-R, selecting the option that the brokerage didn't issue the form, but not sure where to go from there.

Any help available is much appreciated!

TurboTax Self Employed Online

macuser_22

Employee

Betterment is wrong. They are required by law to provide a 1099-R that reports a direct rollover from a IRA to an employer plan.

See: https://www.irs.gov/pub/irs-pdf/i1099r.pdf page 6 [highlights added]

Transfers

Generally, do not report a transfer between trustees or issuers that involves no payment or distribution of funds to the participant, including a trustee-to-trustee transfer from one IRA to another IRA, valid transfers from one section 403(b) plan in accordance with paragraphs 1 through 3 of Regulations section 1.403(b)-10(b), or for the purchase of permissive service credit under section 403(b)(13) or section 457(e)(17) in accordance with paragraph 4 of Regulations section 1.403(b)-10(b) and Regulations section 1.457-10(b)(8). However, you must report:

Recharacterized IRA contributions;
Roth IRA conversions;
Direct rollovers from qualified plans, section 403(b) plans, or governmental section 457(b) plans, including any direct rollovers from such plans that are IRRs or are qualified rollover contributions described in section 408A(e); and
Direct payments from IRAs to accepting employer plans.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

macuser_22

Employee

If Betterment refuses to comply, I would submit a Substitute 1099-R (form 4852) with the rolled over amount in box 1, 0 in box 2a and a code G in box 7 and check the IRA/SEP/SIMPLE box and explain when the interviews asks the reason you are filing the substitute and the steps yiu took to get Betterment to issue a correct form.

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**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

D

dmertz

Employee

The only reason that Betterment would be correct in not reporting the movement of funds from the traditional IRA is if the receiving plan was not a 401(k) but was a SEP plan or a SIMPLE-IRA plan. Even if the employer's plan is truly a 401(k) plan, if the request to Betterment was made improperly (perhaps by requesting a "transfer" instead of a direct rollover) they might have thought they were doing a trustee-to-trustee transfer to an IRA-based plan, not a direct rollover to a qualified retirement plan. Trustee-to-trustee transfers between IRAs are not reportable. (Of course doing a trustee-to-trustee transfer to an IRA-based employer plan does you no good since it's just another IRA that must be included in the year-end balance on Form 8606 line 6.)

macuser_22

Employee

I left out one step in the substitute 1099-R since it is a Traditional IRA that was transfer then the IRA/SEP/SIMPLE box shoukd also be checked. (I edited the answer to add that).

I agree with @dmertz and was going to post as an after-thought...are you sure that the Traditional IRA money actually ended up in your employer 401(k) plan and Betterment did not just transfer it to another IRA account which would not help your backdoor roth at all. Check your 401(k) balance.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**