Planning to Rollover Your 401k?

Planning to Rollover Your 401k?-Financial Symmetry, Inc.

Have you ever had the pleasure of receiving an audit letter from the IRS? You walk back from your mailbox with the fearful nervousness that you may owe more in taxes than you had originally thought. You suddenly remember that you completed a rollover of your old 401k to an IRA last year, and are confused as to why you now may owe tax for this action.

Understanding the communications sent from the custodians where the accounts are held and knowing which IRS forms you will need, should help to put this issue to bed.

Forms You Will Need From Your Rollover

Unfortunately, there’s no rhyme or reason that will help you to remember the different IRS form codes. However, remembering the following two will assist you greatly if you encounter a situation like we described above.

After you initiate a rollover of a former 401k or 403b, you should expect to receive a Form 1099R.  This form is used to report distributions from IRAs whether they are taxable or not.

The second form, Form 5498, you will need is not as well-known but equally as important.  This form’s purpose is to report the rollover contribution made to your new IRA.

These two forms work from opposite ends in the event of a rollover, conversion or recharacterization.  Be especially vigilant when reviewing this information when a transaction starts at one trustee and ends up at another.

For example, if you completed a direct trustee-to-trustee rollover out of a Fidelity 401k into a Vanguard IRA you should receive a 1099R from Fidelity and a form 5498 from Vanguard.  The Fidelity 1099R should show the total amount in box 1 and a code G in box 7 for the direct rollover.  The Vanguard 5498 should show the same amount in box 2 Rollover contributions.

If you completed the rollover within 60 days, where you received a check from one trustee and then made the rollover contribution within that time frame you’ll want to make sure that the form 5498 is accurately reporting the rollover in box 2.  More than likely the trustee issuing the 1099R for the distribution will report a taxable transaction.  You should indicate “rollover” on your tax return and the IRS will get the form 5498 to back that up.

May 31st Tax Deadline

The trustee that maintains your individual retirement accounts (IRAs) is required by the IRS to report contributions, required minimum distributions and the fair market value of the account by May 31.

This date may seem like an odd time to receive a tax form since you’ve probably already filed your return.  However, form 5498 reports contributions made to an IRA during the tax year as well as those made after December 31, but before April 15th for the previous tax year.  Make sure that those contributions match up to what you have reported on your tax return. If not, contact the trustee that sent the form 5498 and request a correction.

Double Check those RMD’s

Another place to be sure that the information provided by the trustee matches your records is Required Minimum Distributions.  There are some fairly complicated rules regarding RMDs, especially if the account was inherited, so it makes sense to double check the accuracy on form 5498.

Understanding how this form is used by the IRS can help keep your tax headaches to a minimum.


Contact us today if you have any questions, or if you want to get started with our continuous service where we can assist with rollovers and RMD’s.

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