What Code On 1099-R For 401K To Roth Ira Rollover Planning to Roll Over Your 401k?

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Planning to Roll Over Your 401k?

Have you ever had the pleasure of receiving an auditor’s letter from the tax office? You step back from your mailbox with the dreaded nervousness that you may owe more in taxes than you originally thought. It slowly dawns on you that you rolled over your old 401k to an IRA last year, and you don’t know why you owe money for that action now. Understanding the communications from the custodians handling the accounts and knowing which IRS forms you will need can help you solve this problem.

Know your IRS numbers

Unfortunately, there is no rhyme or reason to help you remember the different IRS form codes. However, remembering the following two will be of great help if you encounter the situation described above. After you initiate a rollover of a previous 401k or 403b, you should expect to receive a Form 1099R. This form is used to report distributions from IRAs, whether or not they are taxable. The second form you’ll need, Form 5498, isn’t as well known, but it’s just as important. The purpose of this form is to report a rollover contribution to a new IRA. These two forms work from opposite ends when flipped, transformed or recharacterized. Be especially vigilant in reviewing this information when a transaction begins with one trustee and ends with another.

For example, if you did a direct trustee-to-trustee rollover from a Fidelity 401k to a Vanguard IRA, you should receive a Form 1099R from Fidelity and a Form 5498 from Vanguard. The Fidelity 1099R must include the total amount in box 1 and a G code in box 7 to roll directly. Vanguard 5498 should show the same amount in Field 2, the Skip Contributions field.

If you completed a rollover within 60 days of receiving a check from a fiduciary and then made a rollover contribution within that time frame, you must make sure that Form 5498 accurately reports the rollover in Box 2. More than likely. the asset manager issuing the 1099R for distribution declares a taxable transaction. You must include the term “rollover” on your tax return, and the IRS will receive Form 5498 to support it.

May 31 tax deadline?

The trustee managing your Individual Retirement Accounts (IRAs) is required by the IRS to report contributions, required minimum distributions and the account’s fair market value by May 31st. This date may seem like an odd time for your tax form to arrive, as you’ve probably already filed your return. However, Form 5498 reports contributions made to the IRA during the tax year and after December 31st but before April 15th of the previous tax year. Make sure these contributions match what is shown on your tax return. If not, contact the agent who sent the Form 5498 and request a correction.

RMD is not a weapon of mass destruction

Another place to make sure the information provided by the trustee matches your records is the Mandatory Minimum Distribution. There are some fairly complicated rules regarding RMDs, especially if the account is inherited, so you may want to double-check your Form 5498 for accuracy.

Understanding how the IRS uses this form can help minimize tax headaches.

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