mechanics of tIRA -> 401k

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crit
Posts: 355
Joined: Mon Jan 05, 2015 12:54 pm

mechanics of tIRA -> 401k

Post by crit » Thu Oct 12, 2017 6:24 pm

My spouse has a tIRA at vanguard that is 90% rollover and 10% deductible contribution. His company just switched to Fidelity as 401k provider, and they will accept a rolled-in contribution (thus opening the backdoor Roth for him). I have two questions about the mechanics:

1. How does the tax reporting work? My understanding is that we will get vanguard to issue a distribution check without withholding taxes, payable to Fidelity FBO Spouse, and we send that to Fidelity along with their rollover contribution forms. I expect we will get a 1099R from vanguard, and it should have code G as a rollover, but will we also expect some kind of confirmation tax reporting from Fidelity?

2. It appears (not having done it yet) that Vanguard just issues a distribution check for the entire contents, without separating the deductible and the rollover components ... is that correct?

Thanks in advance, I owe a ton to this forum!
And I have done the backdoor Roth for myself already, so I'm fine there.

Spirit Rider
Posts: 6634
Joined: Fri Mar 02, 2007 2:39 pm

Re: mechanics of tIRA -> 401k

Post by Spirit Rider » Thu Oct 12, 2017 6:36 pm

It is not permitted to rollover anything other than taxable assets from an IRA to a 401k. You must specifically determine your pre-tax balances and after-tax contributions. You only rollover the pre-tax balance to the 401k. That leaves just the after-tax contribution in the IRA. You can then do a Roth conversion of that balance tax-free to a Roth IRA.

crit
Posts: 355
Joined: Mon Jan 05, 2015 12:54 pm

Re: mechanics of tIRA -> 401k

Post by crit » Thu Oct 12, 2017 6:41 pm

The whole balance is pre-tax: the contribution was deducted from taxes that year, making it pre-tax. The rollover is also pre-tax.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: mechanics of tIRA -> 401k

Post by Spirit Rider » Thu Oct 12, 2017 7:19 pm

I misunderstood. I was confused, because there is never any reason to separate pre-tax rollover amounts and pre-tax contributions when doing a rollover. The only reason for separating is if you have pre-tax and non-deductible contributions.

crit
Posts: 355
Joined: Mon Jan 05, 2015 12:54 pm

Re: mechanics of tIRA -> 401k

Post by crit » Fri Oct 13, 2017 4:17 pm

bump -- can anyone answer question #1, about tax reporting of tIRA to 401k rollovers?

Alan S.
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Location: Prescott, AZ

Re: mechanics of tIRA -> 401k

Post by Alan S. » Fri Oct 13, 2017 5:14 pm

crit wrote:
Thu Oct 12, 2017 6:24 pm
My spouse has a tIRA at vanguard that is 90% rollover and 10% deductible contribution. His company just switched to Fidelity as 401k provider, and they will accept a rolled-in contribution (thus opening the backdoor Roth for him). I have two questions about the mechanics:

1. How does the tax reporting work? My understanding is that we will get vanguard to issue a distribution check without withholding taxes, payable to Fidelity FBO Spouse, and we send that to Fidelity along with their rollover contribution forms. I expect we will get a 1099R from vanguard, and it should have code G as a rollover, but will we also expect some kind of confirmation tax reporting from Fidelity?

You are correct about the 1099R. However, while IRA custodians must report regular and rollover contributions they receive on Form 5498 to both taxpayer and IRS, there is no equivalent reporting for rollovers received by qualified plans. Despite the direct rollover G coding, this leaves the IRS uneasy that the funds were actually rolled over. Therefore, the 1040 filing instructions indicate that the taxpayer is to include an explanatory statement with their return about the amount and date of the rollover.

2. It appears (not having done it yet) that Vanguard just issues a distribution check for the entire contents, without separating the deductible and the rollover components ... is that correct?

Yes, that is correct because that breakdown has no significance. Note that if he later leaves that employer and rolls his 401k over to an IRA again, the entire IRA balance from that rollover is considered an IRA rollover contribution, even though some of it was once contributed as a regular IRA contribution. If that rollover was done to a rollover IRA it might have long range significance because if his next employer were to only accept IRA rollovers from rollover IRAs, he could then roll that entire rollover IRA back to the new 401k.

Thanks in advance, I owe a ton to this forum!
And I have done the backdoor Roth for myself already, so I'm fine there.

crit
Posts: 355
Joined: Mon Jan 05, 2015 12:54 pm

Re: mechanics of tIRA -> 401k

Post by crit » Fri Oct 13, 2017 5:26 pm

Thanks very much, Alan!

crit
Posts: 355
Joined: Mon Jan 05, 2015 12:54 pm

Re: mechanics of tIRA -> 401k

Post by crit » Mon Oct 23, 2017 9:50 am

I wanted to update my findings so that these details are searchable by someone else looking.

There are several options for getting an IRA distribution check from Vanguard.

Online, you will find a "Do it Online!" button. Following this option, they can distribute it to another fund/account within Vanguard, or mail a check made out to you. This option may be good for RMDs? But it is not great for IRA -> 401k rollovers for two reasons. First, it seems that many 401k plans specify that they need a check made out to their plan FBO (your name), and you can't specify the check recipient "online". Your plan may take a certified bank check (this is an "indirect rollover") after you've cashed the check they send you but -- make sure your details are correct for your plan. Second, you will need a 1099R that is coded correctly, and it doesn't seem that it will happen with the online option.

Vanguard also has an "IRA Distribution Form" that you can download. Note that it is for brokerage IRA accounts only - it asks for the brokerage account number in the first question block. This form will let you specify the check recipient, and should get you a correctly coded 1099R, with code "G" for rollover.

If you're like us/my spouse, and have not converted your IRA to their brokerage format yet, you will need to call Vanguard to get them to send you the IRA Distribution Kit for mutual fund accounts. The questions and such are almost identical to the above form, but it is a different form.

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