401(k) pretax to Roth IRA rollover - paper trail?

[Borsley]

To help me understand this process, can anyone tell me the paper trail (i.e.…tax reporting) that occurs when an individual rolls over pretax 401(kl) monies to a Roth IRA? In other words, what is the paper trail that shows these funds converting from pre-tax to after-tax money? How is the fact that this money is converting from pretax to aftertax via a direct rollover to a ROTH IRA reflected on both the 1099R and the 5498? Is there other tax documents that would be produced as part of this paper trail?

[pmacduff]

The 1099-R from the plan reports this type of transaction (401(k) to roth IRA) with an IRS Code "G" for rollover and then the taxable amount is included in Box 2.

[Whereas on a plan to traditional IRA rollover box 2 taxable amount is 0.00. Wonder how many of those 1099-R forms have been or will be done correctly or incorrectly!!!]

I'm not sure about the 5498.

[K2retire]

Wonder how many of those 1099-R forms have been or will be done correctly or incorrectly!!!]

More than you want to know or think about!

[Guest Sieve]

Will the transferring plan know it's taxable only by the accepting institution's designation of the rollover IRA as "Roth""? Or is there some other way it will know that the rollover is taxable?

[Borsley]

Will the transferring plan know it's taxable only by the accepting institution's designation of the rollover IRA as "Roth""? Or is there some other way it will know that the rollover is taxable?

That's part of what is driving my question. Does the financial institution or TPA assisting with the 401(k) plan have some requirement/reporting responsibilities related the distribution of pretax money out of the 401(k) that will essentially be a conversion to a Roth IRA (i.e.…now after-tax money) and thus report it accordingly? If so, how would they know? Are the now required to ask the individual if the rollover is to another pre-tax vehicle or instead, a Roth IRA? ….and also, what is the reporting on the front-end by the entity who is handling the Roth IRA?

I'm just trying to get comfortable with the paper trail here.

[GMK]

I don't know of a specific documentation requirement, but the Plan has a responsibility to make and report distributions properly (in accordance with the law, regs, and Plan Document).

I suggest having a place on the Distribution Form for the participant to indicate if the rollover is to a Roth and checking with the rollover receiving account to confirm whether it is a Roth or not.

Then, when someone comes to you a few years from now and asks how you determined the taxable amount, you'll have a supportable answer.

[K2retire]

We revised our distribution forms to include that question. Sadly it was done a year late when we realized we had no idea how to code the 1009s for that first year that this was possible.

[mbozek]

To help me understand this process, can anyone tell me the paper trail (i.e.…tax reporting) that occurs when an individual rolls over pretax 401(kl) monies to a Roth IRA? In other words, what is the paper trail that shows these funds converting from pre-tax to after-tax money? How is the fact that this money is converting from pretax to aftertax via a direct rollover to a ROTH IRA reflected on both the 1099R and the 5498? Is there other tax documents that would be produced as part of this paper trail?

According to IRS Pub 590, P 63, for 2010 an 8606 form will have to be filed for rollovers from an employer plan to a Roth IRA. 8606 is not required for 2009 rollovers.