1099-R for direct rollover from a Sole prop DB to 401(k) plan

[AdKu]

From a Sole prop., husband and wife only, DB plan, a direct rollover distribution from the DB plan unrelated rollover account was made to the Sole prop newly established 401(k) Plan as internal transfer in 2018.

The TPA who is also the recordkeeper  didn't think a 1099R was necessary because of the nature of the internal  transfer between two plans of the same employer, Sole prop.

Wasn't 1099R required when the money leaves one plan regardless of whether it was direct rollover within the same sole prop?

If so, how can we correct it now May, 2 1/2 months after  the due date?

If possible please include the section of the code that pin-point a situation like described.

Many thanks

AdKu

[ESOP Guy]

It depends on how the money was moved to determine if a 1099-R is needed.

If it was a trustee imitated transfer of the assets and the participant had no choice there doesn't need to be a 1099-R.  This would be some kind of plan merger.  I get in this case the trustee and participant are the same but how the paperwork matters. If this was done in a way there was no option to roll the money over to an IRA or take the money and pay taxes than there doesn't need to be a 1099-R.

If they had the husband and wife complete a distribution form that gave them the option (even if it was never going to be taken) to roll the money to an IRA or take it and pay taxes there needed to be a 1099-R.  This would be a distribution with a rollover to the new plan.

The only way you can know for sure is if you see some of the paperwork that authorized the movement of the money. 

Was the payment some kind of plan merger (no 1099-R) or a distribution with a rollover (yes to the 1099-R) is the question you need answered.  

[justanotheradmin]

From the Instructions to Form 1099-R (emphasis added). It's pretty straightforward, a 1099-R is required, even for rollovers. There is no exception for plans that happen to be sponsored by the same employer. That actually happens fairly regularly. 

https://www.irs.gov/pub/irs-pdf/i1099r.pdf

"Direct Rollovers You must report a direct rollover of an eligible rollover distribution. A direct rollover is the direct payment of the distribution from a qualified plan, a section 403(b) plan, or a governmental section 457(b) plan to a traditional IRA, Roth IRA, or other eligible retirement plan."

As for how to correct it, and penalties - I would suggest reading the General Instructions. The Penalties portion starts on page 18. Looks like the penalty might be $110 if filed before August 1st? Assuming there is no exception? I would suggest filing now, and see if the IRS sends a notice. Since it sounds like a non-taxable rollover, there should be no other tax impact. 

https://www.irs.gov/pub/irs-pdf/i1099gi.pdf

 

[justanotheradmin]

I agree with ESOP Guy in general - but for this specifically - it would be unusual to have a true plan merger of a DB plan and a 401(k) plan, where the participants have no choice, and pension provisions are preserved. 

I understand there are some hybrid DB/k plans out there, but they aren't common (and I don't know anything about them) and it doesn't sound like that's what you have based on describing it as a rollover. But it is still good to consider ESOP Guy's point in case it for some reason it is a plan merger. 

[CuseFan]

Sometimes, but rarely - I have seen it long ago but not recently - upon DB plan termination benefits are transferred (not rolled over) via trustee to trustee transfer (options were an annuity contract or a transfer w/o spousal consent). This almost never gets done because you then have to maintain the legacy annuity options in the DCP and get spousal consent to opt out of the QJSA. I would be surprised if this is your fact pattern, but just in case.

[AdKu]

Thank you very much ESOP Guy, justanotheradmin and CuseFan.

Does the fact that the money that left the DB plan was from unrelated rollover account, i.e., it wasn't part of the accrued benefit in the DB plan, make any difference?

[justanotheradmin]

No, the money source (unrelated rollover) does not affect the 1099-R requirement.