After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

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lostmonkey007
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After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Thu Feb 01, 2018 11:40 am

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by tfb » Thu Feb 01, 2018 11:49 am

lostmonkey007 wrote:
Thu Feb 01, 2018 11:40 am
+ First out is the $2, as it is the taxable part of the rollover. I pay taxes and early withdrawal penalty (10%) given under 5 years.
+ Subsequently, the $2,368, as it is the non-taxable part of the rollover, is now accessible to me penalty-free?
You pay 10% penalty on withdrawing $2 too soon but no tax because you already paid tax on $2 at the time of rollover. No tax nor penalty on $2,368.
Harry Sit, taking a break from the forums.

lostmonkey007
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Thu Feb 01, 2018 11:50 am

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seawolf21
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by seawolf21 » Thu Feb 01, 2018 5:49 pm

tfb wrote:
Thu Feb 01, 2018 11:49 am
lostmonkey007 wrote:
Thu Feb 01, 2018 11:40 am
+ First out is the $2, as it is the taxable part of the rollover. I pay taxes and early withdrawal penalty (10%) given under 5 years.
+ Subsequently, the $2,368, as it is the non-taxable part of the rollover, is now accessible to me penalty-free?
You pay 10% penalty on withdrawing $2 too soon but no tax because you already paid tax on $2 at the time of rollover. No tax nor penalty on $2,368.
I don’t think that is completely correct. There is a penalty on the $2368 if taken out less than 5 year after the rollover unless you are older than 59.5 years old.

Alan S.
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by Alan S. » Thu Feb 01, 2018 8:07 pm

There is no tax or penalty for distributing the 2368, regardless of when it is distributed. The 10% penalty only applies to the taxable portion of a Roth rollover. 2368 was the non taxable portion of the rollover.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Fri Feb 02, 2018 5:53 pm

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by seawolf21 » Fri Feb 02, 2018 8:02 pm

Alan S. wrote:
Thu Feb 01, 2018 8:07 pm
There is no tax or penalty for distributing the 2368, regardless of when it is distributed. The 10% penalty only applies to the taxable portion of a Roth rollover. 2368 was the non taxable portion of the rollover.
Thanks for the clarification.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Fri Feb 02, 2018 8:27 pm

Alan S. wrote:
Thu Feb 01, 2018 8:07 pm
There is no tax or penalty for distributing the 2368, regardless of when it is distributed. The 10% penalty only applies to the taxable portion of a Roth rollover. 2368 was the non taxable portion of the rollover.
How would you know what the taxable portion ($2) is at the time of withdrawal ? Would the custodian where the Roth IRA is held provide you with a proper 1099-R showing this amount ? Or are you responsible for tracking this yourself ?

I have done rollovers from my Fidelity after-tax 401K to backdoor Roth IRA at Vanguard before, and I don't think Vanguard knew anything about the taxable (contributions) and non-taxable (earnings) portions of the rollover into the Roth IRA. They just took the check from Fidelity and deposited it into my Roth IRA. It was a while ago that I last did that, though - 2011, with a previous employer, so maybe I remember incorrectly. I know the paperwork when filing taxes was a pain as Turbotax didn't really handle that scenario easily.

Now, my current employer allows after-tax contributions again since last year. I have made in-plan conversion of after-tax contributions to Roth 401k so far, which is simple. I also have the option to withdraw the after-tax 401k contributions and roll them over to a Roth IRA, but this seems like more paperwork. On the other hand, my Roth IRA balance isn't growing as much as it could be, which means I'm foregoing asset transfer bonuses for the Roth IRA. The 401k mutual funds are lower ER, though, due to being in a Megacorp plan. Company plan allows in-service withdrawals for after-tax 401k contributions, but not for Roth 401k contributions.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by tfb » Fri Feb 02, 2018 10:26 pm

madbrain wrote:
Fri Feb 02, 2018 8:27 pm
How would you know what the taxable portion ($2) is at the time of withdrawal ? Would the custodian where the Roth IRA is held provide you with a proper 1099-R showing this amount ? Or are you responsible for tracking this yourself ?
You are supposed to track it yourself. Or you can just wait until after 59-1/2 and not worry about tracking. The distributing plan sent you a 1099-R with taxable and non-taxable amounts. The receiving custodian doesn't receive it nor care.
Harry Sit, taking a break from the forums.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Fri Feb 02, 2018 11:16 pm

tfb wrote:
Fri Feb 02, 2018 10:26 pm
madbrain wrote:
Fri Feb 02, 2018 8:27 pm
How would you know what the taxable portion ($2) is at the time of withdrawal ? Would the custodian where the Roth IRA is held provide you with a proper 1099-R showing this amount ? Or are you responsible for tracking this yourself ?
You are supposed to track it yourself. Or you can just wait until after 59-1/2 and not worry about tracking. The distributing plan sent you a 1099-R with taxable and non-taxable amounts. The receiving custodian doesn't receive it nor care.
Just went to look back at old documents . It was JP Morgan, not Fidelity, from which I made a withdrawal of contributions.
Looks like I have paperwork from an early 2011 rollover of after-tax contributions that shows separate total and after-tax portions.
And a corresponding 2011 1099-R from JP Morgan received the following year showing the total in box 1, and the after-tax contributions in box 5.
Do I still have to worry about the separate amounts for contributions & earnings for that year, or can I just track the total basis now due to the 5-year rule ?

I separated employment in august 2011. I did a rollover of the 401k from JP Morgan to my new employer in 2012. This was handled differently than the in-service withdrawal. After termination, I was required to withdraw all contributions. I couldn't withdraw only the after-tax portion.
I received one check for which the total rollover and after-tax portions was the same. That check went into my Vanguard Roth IRA. And then a separate check for pretax portions of rollover. That check went into the Fidelity 401k at my new (and still current) employer.
Strangely, I don't have any records of paperwork from JP Morgan for the tax year 2012. No 1099-R from them for that year.

I understand the need to track the total Roth IRA basis - and I'm doing that already in a spreadsheet. I just wasn't tracking the earnings portion separately for the mega backdoor rollover in 2011. Do I really still need to worry about it, or is it water under the bridge by now ?

My current employer started accepting after-tax contributions in late 2016. I have been contributing the max and did one in-plan conversion to Roth 401K in 2017. There were some earnings associated with those contributions. I just logged in to Fidelity, and I don't see any 1099-R corresponding to that conversion. Is any tax due on the earnings related to the after-tax contributions in case of in-plan conversion ? And if so, in which documents would they appear ? I didn't receive any paperwork for the in-plan rollover, either. It was all handled over the phone. Am I missing something ?

Also, at some point, I will leave my current employer, and rollover the Roth 401k balance to a Roth IRA. Will I still need to treat earnings from after-tax contributions separately from other Roth IRA contributions ? And is that only for 5 years or forever ?

lostmonkey007
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 6:03 am

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madbrain
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Sat Feb 03, 2018 8:31 am

Yes, I know the growth is supposed to be taxed . Will call Fidelity on Monday to find out where the forms are.
Turns out it's on Netbenefits.fidelity.com . The regular Fidelity.com shows the 1099s for all other Fidelity account, except the 401k.

It is my bad for missing the following wording :
(in big print)
All 4 of your personal tax forms are available

(in small print from here :)
Your tax forms total does not include:

Workplace account forms (visit NetBenefits® to view)
Silly me, I only looked at the "all 4" in big print and didn't read the rest.

Still wish they were actually all in one place (all 5, not 4). Fidelity.com shows the 401k but not the corresponding tax forms for it. That is confusing.
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lostmonkey007
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 10:19 am

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 10:49 am

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 11:13 am

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 11:21 am

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 11:41 am

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 11:45 am

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 11:48 am

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Alan S.
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by Alan S. » Sat Feb 03, 2018 12:39 pm

The 2011 direct rollover from JP Morgan to the Fidelity 401k SHOULD HAVE been reported by JP Morgan on a 1099R coded G. However, since that direct rollover would not have been taxable in the event you lost the 1099R, this is nothing to be concerned with now. It will have no future implications.

The in plan Roth rollover (IRR) done in 2017 at Fidelity absolutely must have a 1099R issued by Fidelity. That 1099R would include the gain on the after tax contributions in box 2a. Since you do not want to prepare your taxes and then have the 1099R appear later on, I would call Fidelity next week and ask them about that 1099R. They had to issue it by 1/31 so mailing time would mean that you should have it no later than Mon or Tues.

As lostmonkey indicated, reference to "taxable" or "non taxable" portions of a conversion refer only to the breakdown of the conversion or IRR itself.
For future Roth accounting, the entire converted amount is Roth IRA basis from conversions, so will never be taxed again. But the taxable portion of a conversion, if distributed within the first 5 years and prior to 59.5, will be subject to the 10% penalty. After the 5 years passes, this breakdown between taxable and non taxable no longer matters.

NOTE: Qualified plans were prone to OMITTING the taxable amount in Box 2a when a direct rollover to a Roth IRA instead of a TIRA was done (1099R code G). The reason was that so few of these were done compared to direct rollovers to a TIRA (2a always 0), that they missed 2a from force of habit.

lostmonkey007
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 12:48 pm

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madbrain
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Sat Feb 03, 2018 8:03 pm

lostmonkey007 wrote:
Sat Feb 03, 2018 11:48 am
Madbrain -

You know what would be really helpful... let's flash back to 2011. Before you started doing all these rollovers/conversions, etc. I believe your 401k balances with Employer 1 looked something like this:

+ Traditional Pre-Tax 401k: $300k (a combination of your prior pre-tax contributions from your paychecks + the growth on them)
+ Traditional Roth 401k: $0
+ After-Tax 401k: $18,500.72 (which split into $17,422.23 after-tax 401k contributions from your paychecks + $1,079 taxable growth on them)

Is this accurate?
Yes, this is accurate. I never contributed directly to a Roth 401K. The first time I have ever had a Roth 401k balance was last year at my current employer when I did the in-plan conversion of after-tax contributions and growth at Fidelity.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Sat Feb 03, 2018 8:14 pm

lostmonkey007 wrote:
Sat Feb 03, 2018 11:41 am
You contradict yourself.
+ Scenario A: You say initially the the $18,500.72 represents your after-tax contribution + taxable growth. And that the $1,079 of taxable growth showed up on your line 16-b of your Form 1040 for 2011. So, you did move the taxable growth to your Roth IRA and paid taxes on it as a result in 2011.
+ Scenario B: Later you say "I ended up not paying the tax on the growth of after-tax contributions, because it was never rolled over to a Roth IRA - the growth was separate and part of the "pretax" check."

It can't be both. I actually believe it was Scenario A that transpired. Your 1099-R from 2011 should have reflected that $1,079 in box 2a. It was mis-stated. This was Check One from JP Morgan of funds going from your after-tax 401k --> Roth IRA.
There is no contradiction. It is both. Things happened in two different tax years.
1) scenario A was while still employed. I did one rollover of after-tax contributions + growth to a Roth IRA on 1/5/2011 . I got a 1099-R with the amounts cited, and reported them on my 1040 for 2011
2) scenario B was after termination. I left employment in the summer of 2011. I got a fairly nice severance package, a nice chunk of which went to additional after-tax 401k contributions. I left all the funds in the 401k through the end of the year. Then, on 1/20/2012, I tried to rollover the funds to my new employer's 401k. At that point, I got two checks from JP Morgan. One for $28,813.45 for the after-tax portion, and one for $302,712.05 for the pretax portion (pretax contributions, match, and all earnings).

The confusion is that the terms of the plan dictated that the custodian would have to do things differently while employed and after termination. Scenario A (withrawing only the after-tax portion & growth) was no longer possible after termination. Hence the 2 checks, and them going to different places. Believe me, I would much rather have gotten a single check, and I asked. No one at JP Morgan would do it.
Another place JP Morgan messed up was your missing 1099-R related to Check Two, the $300k pre-tax 401k. You should have a 1099-R that reads:
box 1 gross distribution - $300k
box 2a taxable amount - $0
box 5 employee contributions/designated Roth - $0

Please contact JP Morgan or Employer 1 human resources team to track down this 1099-R.
Agree. I think I should have two 1099-Rs from JP Morgan actually - one for each portion/check that I received. Or a combined one, not sure. But I have none. I didn't realize it was important to track this. No tax was due in tax year 2012, though, since all earnings (attributable to all contributions, both pre-tax and after-tax) ended up in a rollover IRA and in the new 401k plan as pretax amount.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Sat Feb 03, 2018 8:15 pm

lostmonkey007 wrote:
Sat Feb 03, 2018 12:48 pm
Will the in-plan Roth rollover be considered as converted during the Tax Year 2017 or Tax Year 2018? I ask because that would influence early Roth IRA withdrawal order as well as determine when the 5-year clock/susceptibility to 10% penalty ends. My intuitive sense is that it would be Tax Year 2017 as that was the year in which Madbrain converted those funds and paid taxes on them.
I would think that this would be tax year 2017, since the conversion occurred during calendar year 2017. I don't see how it possibly could be for the following tax year. Of course, taxes for that tax year are paid and filed in calendar 2018.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Sat Feb 03, 2018 8:18 pm

Alan S. wrote:
Sat Feb 03, 2018 12:39 pm
The 2011 direct rollover from JP Morgan to the Fidelity 401k SHOULD HAVE been reported by JP Morgan on a 1099R coded G. However, since that direct rollover would not have been taxable in the event you lost the 1099R, this is nothing to be concerned with now. It will have no future implications.
Just checked, it is actually coded G in box 7 .
The in plan Roth rollover (IRR) done in 2017 at Fidelity absolutely must have a 1099R issued by Fidelity. That 1099R would include the gain on the after tax contributions in box 2a. Since you do not want to prepare your taxes and then have the 1099R appear later on, I would call Fidelity next week and ask them about that 1099R. They had to issue it by 1/31 so mailing time would mean that you should have it no later than Mon or Tues.
Yes, I will contact them. Strange that the 1099-R is not available online.
As lostmonkey indicated, reference to "taxable" or "non taxable" portions of a conversion refer only to the breakdown of the conversion or IRR itself.
For future Roth accounting, the entire converted amount is Roth IRA basis from conversions, so will never be taxed again. But the taxable portion of a conversion, if distributed within the first 5 years and prior to 59.5, will be subject to the 10% penalty. After the 5 years passes, this breakdown between taxable and non taxable no longer matters.
Thanks, that makes sense. So, for all intents and purposes, I only need to tracked the separate basis from growth and contributions for the last 5 calendar years. For all previous years, there is only a single basis.
NOTE: Qualified plans were prone to OMITTING the taxable amount in Box 2a when a direct rollover to a Roth IRA instead of a TIRA was done (1099R code G). The reason was that so few of these were done compared to direct rollovers to a TIRA (2a always 0), that they missed 2a from force of habit.
That appears to be the case here. Code G in box 7, but no amount in box 2a, for my 2011 tax year 1099-R from JP Morgan.
1099s for tax year 2012 from JP Morgan are missing.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Sat Feb 03, 2018 8:25 pm

lostmonkey007 wrote:
Sat Feb 03, 2018 10:19 am
Before I respond to the rest of your post. Let's clarify one point about the Taxable portion of your Roth IRA. An example may help. Let's say I live in a simple world where I have 401k. And I've contributed to it on a both a pre-tax and Roth basis. When I leave my company and rollover the entire 401k (pre-tax assets, Roth assets) to a Roth IRA in say Tax Year 2018. My records will state:

2018
+ Taxable: Pre-tax 401k amount (both the contributions as well as any growth on them)
+ Non-Taxable: My Roth 401k contributions amounts
(The earnings on the Roth 401k would simply be considered Roth IRA earnings following the Rollover and be susceptible till 59 1/2 to both taxes and 10% penalty)

The point here is me rolling over the 401k triggered the tax on the pre-tax 401k assets. Thus I already pay taxes on them before they reach the Roth IRA. The point of calling them the Taxable portion of the Roth IRA is not to suggest they'll be taxed again. Rather it's too track them as superior to the Non-Taxable portion in Roth IRA withdrawal order. So if you were to try and withdraw funds from the Roth IRA, you would have to first withdraw the Taxable portion of the Roth IRA, and pay 5% penalty if under 5 years since Rollover, before you can withdraw the the Non-Taxable portion. You would never be taxed again on the Taxable portion of the Roth IRA.

Does this make more sense?
Yes, what you are saying makes sense. But I think the IRS wording could be clearer. Instead of calling it "taxable portion", pub 590 really should refer to "previously taxed" portion in this case, IMO.

I think you meant 10% penalty rather than 5% penalty.

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 9:00 pm

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 9:00 pm

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 9:01 pm

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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by lostmonkey007 » Sat Feb 03, 2018 9:06 pm

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madbrain
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Re: After-tax 401k --> Mega Backdoor Roth IRA --> Early Withdrawal

Post by madbrain » Mon Feb 05, 2018 9:53 pm

madbrain wrote:
Sat Feb 03, 2018 8:14 pm
lostmonkey007 wrote:
Sat Feb 03, 2018 11:41 am
Another place JP Morgan messed up was your missing 1099-R related to Check Two, the $300k pre-tax 401k. You should have a 1099-R that reads:
box 1 gross distribution - $300k
box 2a taxable amount - $0
box 5 employee contributions/designated Roth - $0

Please contact JP Morgan or Employer 1 human resources team to track down this 1099-R.
Agree. I think I should have two 1099-Rs from JP Morgan actually - one for each portion/check that I received. Or a combined one, not sure. But I have none. I didn't realize it was important to track this. No tax was due in tax year 2012, though, since all earnings (attributable to all contributions, both pre-tax and after-tax) ended up in a rollover IRA and in the new 401k plan as pretax amount.

So, I called JP Morgan. They turned all the records to Empower. But they did have the missing 1099-R. Not sure why it was never mailed. But they are going to mail it now. They told me the amounts over the phone. Box 1 corresponds to the total of all contributions and earnings. Box 5 all the after-tax contributions. Nothing in box 2a. But this is actually correct in this case since all the earnings went to pre-tax rollover and then new employer 401k subsequently.

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