Client rolled over from a designated Roth account into a Roth IRA and also took a distribution from the Roth IRA, receiving two separate 1099-R forms from different companies. The 1099-R for the rollover has an amount in box 5 for employee contributions and also has a year 2010 in box 11. Client is not yet age 59 1/2. Do I manually enter the box 5 amount from the rollover 1099-R into the IRA worksheet to get the correct taxable amount of the 1099-R Roth distribution?
I spoke to my client to clarify. In an effort to make things less confusing, I only asked about one of my clients roll overs. My client left employment from two jobs where contributions were made to their Roth Designated accounts. One job was from 2010 (was never rolled over even after leaving employment) and the other was 2017 and both were rolled over in 2021. All of the Designated Roth Accounts were rolled over into one new Roth IRA. From the 2017 investment, my client received a check in May, but rolled it over in June, the 2010 investment was a direct roll over. Two distributions from the new Roth IRA were made in 2021, one happened two weeks after the roll over into the Roth IRA and another in August. Are you saying that the new Roth IRA contribution amount is the total of the roll overs, or do I have to track that the roll overs were part from contributions and part from earnings? I have searched IRS code, but I haven't found a clear answer, and I'm unsure if this is a conversion since they are both Roth accounts?
"All of the Designated Roth Accounts were rolled over into one new Roth IRA."
Yay! See how things will make sense if you take it one step at a time?
There would be two 1099-R, then. And there will be one Form 5498.
"From the 2017 investment" account...", my client received a check in May, but rolled it over in June,"
For reference, it matters if that check issued is payable to your taxpayer or to their broker, and if that had been from a 401(k) account (or traditional IRA); and, always look for withholding, to be able to tell if the taxpayer rolled over the same Gross or not. A Rollover has a 60-day window. A Roth also has various 5-year rules for "qualification" as well.
"the 2010 investment was a direct roll over."
Okay, let's review that Rollovers (where the funds are available to the client) for Roth are only permitted once in 365 days. That's why Direct is the better option.
"Two distributions from the new Roth IRA were made in 2021," technically, Three. If that check was made out to the taxpayer that got Rolled..."one happened two weeks after the roll over into the Roth IRA and another in August."
Yay! So, now you know there would be 3 1099-R. One from each employer and one from the Roth IRA brokerage. But now we bump against the 5-year rule. If there was no Roth IRA prior to this, your taxpayer fails the 5-year test:
https://www.investopedia.com/articles/retirement/09/roth-401k-rollover.asp
"Are you saying that the new Roth IRA contribution amount is the total of the roll overs,"
Nothing here is a contribution, so far. What you told us about is Rollovers. These are not synonyms. A Contribution is new money for a specific tax year against the earned income for that year and the taxpayer's eligibility. So far, you have been asking about moved money and not new money.
"or do I have to track that the roll overs were part from contributions and part from earnings?"
You should read up on the various Roth 5-year rules. Your taxpayer should have the info, i but it wouldn't have mattered to the tax return, if everything had been qualified. Now, yes, there is going to be penalty and taxable amounts. The age of the taxpayer matters, the amount of time any Roth IRA has existed (not Roth 401(k)), etc. This is why taxpayers need to get better tax guidance before taking these actions.
"I have searched IRS code, but I haven't found a clear answer, and I'm unsure if this is a conversion since they are both Roth accounts?"
The answers are all there, but also use web resources; especially, I like those written towards the consumer, such as that investopedia article I linked (they have a bunch of others), and this one:
https://meetbeagle.com/resources/post/how-many-401k-rollovers-per-year
It's not Conversion, as you note, since it is from similar tax status plan/account to account. For pre-taxed funds, it would matter if the account had Basis (commingled funds). A Roth is entirely post-tax contributions and supposedly tax-free earnings, but there are multiple limitations that are in place to try to keep the taxpayer from using it as a Loan Account, for example.
You should be able to use the 1099-R worksheet, but each 1099-R is its own events.
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