2020 1099-R 401k to Roth Conversion but didn't receive check until 2021

[NPChristy]

My client left her job in 2020 and directed her tax-deductible 401k balance to be rolled over into a Roth IRA.  The 2020 1099-R had Code G and they did their own taxes in 2020 and this was reported as a regular rollover, so no taxes were paid.  However, the 2020 401k check was lost in the mail and had to be reissued in 2021, so the client didn't open her Roth until March of 2021 when she received the check.  

To record the tax on the Roth conversion, do I amend the 2020 tax return to include the Roth conversion or is there a way record it on the 2021 return, since that's when she actually received the payment.

[Just-Lisa-Now-]

if the 1099R says 2020 on it, the IRS will expect to see it on a 2020 return.

[qbteachmt]

"The 2020 1099-R had Code G and they did their own taxes in 2020 and this was reported as a regular rollover"

But there is no Account at this point, so there was no rollover?

"so no taxes were paid."

Unless that was a Roth 401(k) to Roth IRA, there is Conversion and there would be taxes owed.

"Rollover" is not the same as Taxable or not.

"so the client didn't open her Roth until March of 2021 when she received the check."

If she received the check, that would only be Rollover if it was deposited with the required timeframe. It is Rollover from "like type account to like type account" such as 401(k) to Trad IRA (both are pre-taxed dollars), Roth 401(k) to Roth IRA (both are post-tax dollars). Of course, an employer can offer each type of 401(k) account and the employee can have the amounts Split accordingly, as required, or still decide to do conversion on the sheltered/deferred portion (the 401(k)).

"To record the tax on the Roth conversion, do I amend the 2020 tax return"

Yes...

"to include the Roth conversion"

to Remove it. Unless there is a 1099-R for the 401(k) for 2020? And if so, was the deposit to Roth made in the timeframe of "rollover" or was that delay too long?

"or is there a way record it on the 2021 return, since that's when she actually received the payment."

Either way, it seems 2020 was wrong and needs to be amended.

[dascpa]

You cannot "rollover" a Traditional IRA, 401(k), etc. into a Roth.  You can convert it to a Roth.  Big difference.

There was no 2020 Roth conversion.  The conversion happened in 2021 and you report it as such.  The investment house should have issued a 2021 1099-R for the conversion but I've seen some not do it when it's internal.  In that case use the investment house data from the 2020 1099-R and create your own 2021 1099-R and then on page 2, box B5 of the 1099-R Worksheet mark that the entire amount was converted to a Roth.

[jeffmcpa2010]

Isn't Code "G" a Direct Trustee to Trustee rollover? 

I do know sometimes they mail a check to the Taxpayer made out to the new trustee - but might it be possible that the rollover time frame limit might not come into play?

[dascpa · Accepted solution]

Code G is trustee to trustee for rollovers, not conversions. Since the rollover is t-to-t it complies with the 60 day time frame and is reportable, not taxable.

For a conversion the investment house will issue it as Code 1 or Code 7.  If it is Code 1 for being under age 59 1/2 the conversion checkbox will remove the 10% penalty since it does not apply. 

Investment houses are notorious for screwing up the coding.  

This transaction is to follow the facts.  The rollover happened in 2020, the conversion happened in 2021. 

...If you move money from your 401(k) plan to an IRA, that's a rollover. And a Roth conversion occurs when you change a traditional IRA to a Roth IRA. The distinction is important because the IRS treats these transactions differently for tax purposes.

[rbynaker]

Maybe I'm the only one, but I miss the good ol' days when you could only go from a 401(k) to a Traditional IRA.  Then if you wanted to convert to Roth that was a separate transaction.  Now it's like the Wild West and the bank/broker reporting is only as good as what the client self-reports on the distribution paperwork.

[NPChristy]

In box 2, they reported the entire distribution amount from box 1 as taxable, but I usually don't see a G code if going into a Roth, I usually see a 2 for under 59 1/2.  I called the 2020 401k broker, but they said that's how they report it.  Even though the replacement check wasn't distributed until 2021, they won't amend.

[NPChristy]

It's on the 2020 return, but just as a direct rollover, non-taxable event.

[NPChristy]

For 2021, in proseries, can I create a substitute 1099-R using the Roth IRA's fed ID code or do I have to fill out 4852 and attach?

[qbteachmt]

"In box 2, they reported the entire distribution amount from box 1 as taxable, but I usually don't see a G code if going into a Roth, I usually see a 2 for under 59 1/2. I called the 2020 401k broker, but they said that's how they report it. Even though the replacement check wasn't distributed until 2021, they won't amend."

Let's understand that a lot goes wrong with these events. The employer gets it wrong, the receiving entity gets it wrong, the taxpayer gives the wrong instructions, the broker/agent acts wrongly, etc. Yesterday's Dave Ramsey has a caller who asked the broker to convert "a few shares" from IRA to Roth, and instead, the entire account got converted.

I read in here that a Check was lost and reissued. That means the 2020 1099-R would include withholding, if payable to the taxpayer. But Code G indicates sent directly to the other brokerage. And it assumes a Qualified Plan. That means the issuer was not notified this was going to a Roth, and they are not always aware of what is happening at the other end, anyway. It would be reported as not taxable if it first went into a traditional IRA. It seems it went to Neither Trad or Roth timely? This is Important:

"so the client didn't open her Roth until March of 2021 when she received the check."

She Received is not Direct Transfer.

The issue of Timeliness has not been answered.

Get the Form 5498 for all accounts that were part of this, to see what the receiving entity considered happened.

Let's examine what would happened across a year end, as long as it meets the timeliness for Rollover:

She has a 2020 event as Distribution from the 401(k). Within the required timeframe, but now in 2021, she presents the check to the brokerage to establish a Roth, as a Rollover, which also makes it taxable as a Conversion (not like-account to like-account). That is reportable and taxed in 2020.

There is no G event if she had access to the money as a check.

"It's on the 2020 return, but just as a direct rollover, non-taxable event."

Not direct, and Not non-taxable. It appears 2020 needs to be amended.

"can I create a substitute 1099-R using the Roth IRA's fed ID code"

That ID has no applicability here. You are not issuing the 1099-R. There already is one, for 2020. If you confirm it went into a Trad IRA first, then there will be a 2021 1099-R from the brokerage for the conversion in 2021 and the 2020 1099-R would be correct as a nontaxable event.

"or do I have to fill out 4852 and attach?"

No. Deal with the brokerage.

[NPChristy]

Thank you for your detailed response! I called the broker and had already told them it wasn't a G event. They knew it was a check going to a Roth, but they said how they show that is they put a taxable amount in box 2 and leave the G.  They refused to amend the 1099R. And the new broker won't issue a 1099 for the conversion in 2021 since it was put directly into a Roth a/c.  I had decided just to amend 2020 and record the Roth conversion then, since it didn't make sense to me to 'create' a 1099R in 2021.  So what you're saying makes logical sense.  Thanks again!

[chenschuh]

I don't think you should amend 2020 recording it as Roth conversion. If you did, clients will have to pay tax in 2020 instead of 2021.

[qbteachmt]

"And the new broker won't issue a 1099 for the conversion in 2021 since it was put directly into a Roth a/c."

It would be because this new Broker had nothing to do with the Outflow. They would be the one issuing a Form 5498. Not any 1099-R. They would only issue a 1099-R if it had gone first to a Trad IRA, then converted to inhouse Roth account.

The IRS will have 2020 1099-R, so that is the one you would address. And since the "check was late" in arriving in 2021, I would keep any info that proves there was intent to make this a timely conversion, and why it didn't happened timely was not under the taxpayer's control (they didn't delay on a rollover so they could use the money in between, for instance).