On 2/12/23 12:04 PM, Stuart O. Bronstein wrote:
I don't do returns, and I haven't been able to find out the answer to
this question. OP transferred money from one company's 401(k) to
another company's 401(k), and he received a 1099-R. The instructions
for the 1099-R give information on how the distribution is to be
reported, but it doesn't cover this case.
My guess is that it's reported on Line 5a of the 1040, Pensions and annuities, but showing zero as the taxable amount.
Is this a reasonable approach? Or am I way off base? Is this a normal rollover? I thought a 401(k) could only be rolled over into an IRA.
Thanks.
First, to address rollovers. Yes, it's permitted to transfer from one's
old 401(k) to a new one.
It's possible the new 401(k) has very low expenses and the person would
just rather have the one retirement account. I worked for a company
whose plan had an S&P index for a .02% (i.e. 1% over 50 years) and index
funds available to the public hadn't dropped that low yet.
Or. Person is in a high tax bracket, beyond the ability to deposit to an
IRA and take a deduction. So, they'd use the back-door process. Deposit,
with no deduction, and convert to Roth. This process is far simpler if
there is no existing IRA, as that would require prorating the conversion
and mixing in the pretax money from the transferred 401(k).
Or - for someone who might want to take a loan, the transfer to the new
401(k) makes sense. (I'm not taking a position on whether this is wise.
I can probably contrive situations that go either way).
My tax return doesn't have 401(k) to 401(k) transfer, just 401(k) to
IRA, as it's easier for me to transfer a chunk of money to the IRA, and
then distribute as we spend over the year. 5a shows the full amount transferred. 5b shows only the amount we withdrew that did not go to the
IRAs. It's zero most years. and the tax form shows "Rollover" typed in
between "b Taxable amount" and the 5b line. I use tax software, which
wrote that. I assume the instructions would have a paper return do the
same.
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