How to document in-plan conversion of after tax voluntary contribution

We administer an Owners Only 401k plan. Contributions for 2022 were $20,500 to Roth 401k and $40,500 in after-tax voluntary contributions.
Participant now wants to do an in-plan conversion of after-tax voluntary contribution to a Roth account.

1) How should this transaction documented? Does the plan issue a 1099-R showing a total distribution of the current after-tax balance, with only the earnings portion as taxable ?

2) Assets are held a Schwab. Does a separate sub-account need to be set-up for the various types of in-plan conversions e.g., after tax, employer match, profit sharing etc. or can they all be "lumped" into one account?

Thank you

The owner should sign a form electing an in-plan conversion of $x and indicate which source is being converted if there are multiple. It's possible your document provider has model forms you can use, ours does.

A 1099-R should be issues for the transaction.

Ideally I'd like to have it transferred to another sub account at Schwab so it's clear, but you can "lump it one in account" if your on paper tracking is excellent and beyond IRS audit reproach.

I am under impression that for Roth there is a requirement to have a separate subaccount within the Plan.  Thus, in addition to the precise election forms management, there is an additional step of doing a physical transfer from "main" account to a Roth subbaccount.  

There is a requirement for a separate accounting of contribution sources such as pre-tax elective deferrals, Roth elective deferrals, match contributions, employer contributions, rollover contributions and after-tax contributions (to name a few), but there is no requirement to open separate trust accounts or sub-accounts for each source.

For IRRs: Under age 59½, 10% penalty waived. 

RECAPTURE TAX - The 10% will be applied if the IRR conversion is withdrawn before five years.

• Recapture tax will not apply if: – Attainment of age 59½ – Distribution due to severance from service in year age 55 attained or later – A known exception to the penalty occurs

Measuring Five-Taxable-Year Recapture Period • Recapture tax’s five-taxable-year period – Starts with the first day of participant’s tax year in which in-plan Roth conversion made, usually January 1 – Ends on last day of individual’s fifth taxable year after conversion – Amounts may be rolled to another Roth without penalty. If withdrawn from subsequent Roth before end of five-year period, 10% recapture tax will apply.

• A separate designated Roth sub-account should be established for each in-plan Roth conversion in order to appropriately apply the recapture tax or acceleration of income rules.