Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

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TedSwippet
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Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by TedSwippet » Sat Jan 20, 2018 4:36 am

Last year I converted a portion of my (pure, vanilla, pre-tax) 401k directly to a Roth IRA. Vanguard has not issued a form 1099-R because it turns out that what I did here was a 'mid-air' conversion, so a 1099-R is apparently unnecessary. They will issue a form 5498 in May, and from the sound of things that will be all I will get.

What is the correct way and set of forms to use to accurately report this on a 2017 tax return?

A web search showed up very few visibly relevant hits. And none offers much detail beyond noting that the conversion amount is taxable (already known!) and one with a (slightly dubious?) reference to form 8606.

Perhaps it's just as simple as entering the rollover amount on the 1040 as if from an IRA and with 1099-R and then carrying on as normal? Thanks.

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tfb
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Re: Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by tfb » Sat Jan 20, 2018 10:17 am

TedSwippet wrote:
Sat Jan 20, 2018 4:36 am
Last year I converted a portion of my (pure, vanilla, pre-tax) 401k directly to a Roth IRA. Vanguard has not issued a form 1099-R because it turns out that what I did here was a 'mid-air' conversion, so a 1099-R is apparently unnecessary. They will issue a form 5498 in May, and from the sound of things that will be all I will get.
If Vanguard told you this it's not true. A 1099-R is still necessary. It comes out from the 401k side. So just wait or log in to the 401k side and look for it. When you get it, enter it into software and proceed as usual.
Harry Sit, taking a break from the forums.

TedSwippet
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Re: Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by TedSwippet » Sat Jan 20, 2018 11:59 am

tfb wrote:
Sat Jan 20, 2018 10:17 am
If Vanguard told you this it's not true. A 1099-R is still necessary. It comes out from the 401k side. So just wait or log in to the 401k side and look for it. When you get it, enter it into software and proceed as usual.
Ah, right. Thanks.

Re-reading what Vanguard said more closely, it appears that the person responding was perhaps under the impression that I had converted from a 401k at a different provider into my Vanguard Roth, whereas in fact I converted -- in mid-air, like a trapeze artist? -- from a 401k at Vanguard to a Roth also at Vanguard. And looking at the specific 401k part of my Vanguard account, it appears that 1099-R forms here are not 'overdue' until the end of January. So... it looks like if I wait a few days then things may all arrange themselves as anticipated. We'll see.

At this point I should confess that I am a non-resident alien, so definitely a 'niche' conversion case. As far as I can tell that should not make any difference to the way Vanguard reports this conversion, but since this is the first year in which I have tried this, it is a bit tricky to be sure of what to expect.

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tfb
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Re: Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by tfb » Sat Jan 20, 2018 12:16 pm

TedSwippet wrote:
Sat Jan 20, 2018 11:59 am
Re-reading what Vanguard said more closely, it appears that the person responding was perhaps under the impression that I had converted from a 401k at a different provider into my Vanguard Roth, whereas in fact I converted -- in mid-air, like a trapeze artist? -- from a 401k at Vanguard to a Roth also at Vanguard.
Using the right terminology sometimes helps. It's a rollover (not a conversion, nothing about "mid-air") from your 401k to your Roth IRA. Just as any other rollover, the distributing 401k issues a 1099-R. It doesn't matter whether you are a non-resident alien or whether the money is going to a traditional IRA, a Roth IRA or another 401k, or whether the 401k and the IRA are administered by the same company. You always go to the source 401k for your 1099-R.
Harry Sit, taking a break from the forums.

TedSwippet
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Re: Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by TedSwippet » Sat Jan 20, 2018 12:29 pm

tfb wrote:
Sat Jan 20, 2018 12:16 pm
Using the right terminology sometimes helps. It's a rollover (not a conversion, nothing about "mid-air") from your 401k to your Roth IRA. ...
Got it, thanks.

It was Vanguard that introduced the term 'mid-air conversion'. I had never heard it before today. The way Vanguard displays all my accounts -- IRA, Roth IRA, taxable, and 401k -- as if seamless leads me to regularly forget that the 401k is not really as connected to the others as it appears, but instead has its own entirely separate 'tax forms' and other sections.

Thanks again for the notes and clarifications, then.

Alan S.
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Re: Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by Alan S. » Sat Jan 20, 2018 12:50 pm

As tfb indicated, ANY rollover from any non Roth source to a Roth account will produce a 1099R showing the taxable amount.

It would be preferable if Vanguard would drop this "mid-air" term. Apparently it is meant as a depiction of a direct rollover transfer where no check is payable to you, the participant. But because the source was an employer plan, there must be a 1099R regardless of which part of the 401k was rolled over, regardless of where it was rolled to, or whether it was just distributed to you.

The only case where there would not be a 1099R would be if you transferred money by direct transfer from one Roth IRA to another Roth IRA.

To your question, when you get the 1099R it should have a taxable amount in Box 2a. Sometimes plans mess up and do not enter a taxable amount because direct rollovers to a Roth IRA are relatively rare compared to going to a pre tax IRA where the direct rollover would be non taxable. You would report this 1099R on lines 16a and 16b (taxable amount on 16b), and enter "rollover" on the line next to 16b. And if you use a tax program, that is what your final 1040 should look like.

TedSwippet
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Re: Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by TedSwippet » Sat Jan 20, 2018 2:04 pm

Alan S. wrote:
Sat Jan 20, 2018 12:50 pm
To your question, when you get the 1099R it should have a taxable amount in Box 2a. Sometimes plans mess up and do not enter a taxable amount because direct rollovers to a Roth IRA are relatively rare compared to going to a pre tax IRA where the direct rollover would be non taxable. You would report this 1099R on lines 16a and 16b (taxable amount on 16b), and enter "rollover" on the line next to 16b. And if you use a tax program, that is what your final 1040 should look like.
Perfect, thanks. (I actually file a 1040NR, so for me 'Pensions and annuities' falls on lines 17a and 17b.)

TedSwippet
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Re: Tax reporting for 'mid-air' 401k to Roth IRA conversion -- how?

Post by TedSwippet » Fri Jan 26, 2018 4:47 pm

...and just to close this out, a freshly minted and correct-looking 1099-R is now visible in the 401k area of my Vanguard account.

Thanks again, all.

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