1099-R And 401(k) Rollovers

If you rolled over a 401(k) last year, you should get a 1099-R form from your (previous) investment provider. Naturally, you’ll wonder: Has there been a mistake? Will I owe taxes on the transaction? If the rollover was processed correctly, you should not owe taxes.

Are you looking for your 1099-R? If you actually want a 1099-R and haven’t received it yet, call your 401(k)’s investment provider. They might be able to email or fax you a copy before it arrives in the mail.

1099-R Anxiety

Most people are surprised to see a 1099-R after a 401(k) rollover. The thinking is that they rolled money directly to another retirement account, so the IRS doesn’t need to know about it. Whenever the IRS is involved, people they think they’ll owe income taxes.

In fact, you will receive a 1099-R when you do a 401(k) rollover, and it’s not a mistake. The investment company that held your money is required to send the form and to report the distribution to the IRS. The good news: if you roll the money over to another retirement account (such as an IRA, 401(k), 403B, SEP, etc.) you generally won’t have to pay any income taxes — the form is just for reporting.

Reporting 401(k) Rollovers on 1099-R

The important thing is to make sure that the 1099-R was prepared correctly. If you did a rollover, look in box number seven of your 1099-R. Ideally, you will see the letter “G” in the box. If so, they have correctly reported the transaction as a rollover.

Tip: Make sure you see the letter “G” on your 1099-R form (in Box 7), which indicates that you did a rollover. This is especially confusing when financial institutions use the word “distribution” for your rollover.

Errors in Reporting 401(k) Rollovers

If you do not have a G in box number seven, you may have a problem. Your 401k provider could have reported the distribution incorrectly, and this may cause some headaches for you. Why? The IRS will believe that you didn’t roll the funds to another retirement account, which means you’d most likely owe income tax (and possibly penalties) on a “distribution.” Find out how they coded the distribution and what it means for your taxes.

You may be able to fix the situation with a phone call to the investment provider or your former employer. It’s important to be proactive if you discover an error — if you wait you’ll just forget all of the details of the transaction, who you talked to, and where things could have gone wrong. Start by contacting the company that printed the check (the investment provider) — they should have all of the records necessary.

When rollovers are not coded correctly — and not corrected — you’ll eventually get a letter from the IRS stating that you under-reported your income. They show the distribution as income you received, and they expect some revenue from that payment. Again, it’s best to get a corrected 1099 and show the IRS that you actually rolled the money over. If that’s not feasible, ask your tax preparer for alternative ways to proceed. You might be able to prove the rollover by showing a copy of your rollover check (with the check payable to your IRA or other retirement account). Likewise, you could show account statements with each transaction: the money leaving your 401k, and the money arriving in your IRA. Be sure that the statements show the exact dates of the rollover so there’s no question about the 60-day rollover rule (especially if you did another 60-day rollover during that year).

How to Report Your 401(k) Rollover

To handle the transaction on your tax forms, see this plain-English overview (but be sure follow the IRS instructions). If you have questions, talk to a tax adviser who can tell you exactly what to put on which line of the tax return, given your particulars. A few minutes on the phone now can help you avoid costly mistakes and get everything done quickly.