Question

I have a question about rolling 401K into IRA and reporting 401K rollover into IRA. If my previous employer made me rollover my 401K into a traditional IRA, how should I report it?

Answer

Regarding rolling 401K into IRA, you should receive a Form 1099-R reporting your 401K distribution. Regarding reporting 401K rollover into IRA, how you report it to the IRS depends on the type of rollover.

If this was a direct rollover, it should be coded G. Enter the amount from your 1099-R, Box 1 on Form 1040, Line 16a. Enter the taxable amount from Box 2a on Line 16b. The Box 2a amount should be 0 for direct rollovers.

If you received a distribution check from your 401K, 20% in federal taxes might have been withheld from that check. Taxes withheld are reported on 1099-R, Box 4. You must roll over the check amount and the 20% within 60 days for the distribution to be tax-free. This applies even though you didn’t actually receive the 20% withheld. If you do this, you might get most of the withheld amount back in a refund when you file your taxes since it won’t be needed to pay the tax on the withdrawal.

Ex: If your distribution is $10,000, you’d get a check for $8,000. However, you must roll over all $10,000 into the IRA or pay the taxes on the difference.

The amount you redeposit within 60 days is a tax-free rollover. This applies if this is the only rollover within a one-year period. The portion of the distribution you keep is taxable. You might be subject to an early withdrawal penalty unless a Form 5329 exception applies.

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