1099-R And 401(k) Rollovers

You may have done a 401(k) rollover recently and received a 1099-R in the mail. Is there some mistake? Will you owe taxes on the transaction?

1099-R Anxiety

A lot of people think that they should not receive a 1099-R on a 401(k) rollover. The thinking is that they've rolled the money directly to another retirement account, so the IRS should not be involved. Most people panic when they see the 1099-R because 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. If you roll the money over to another retirement account (such as an IRA, 401(k), 403B, etc.) you generally won't have to pay any income taxes.

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, you should 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.

Errors in Reporting 401(k) Rollover

If you do not have a G in box number seven, you may have a problem. They may have reported the distribution incorrectly, and this could cause headaches for you. 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. 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.

How to Report 401(k) Rollover

To handle the transaction on your tax forms, follow the IRS instructions. If you have questions, talk to a tax adviser. They can help you avoid costly mistakes and get it done quickly.