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How do I report a rollover from one account to another?

Retirement Rollovers

A rollover of retirement funds occurs when you take cash or other assets from one eligible retirement account and contribute all or part of it, within 60 days, to another eligible retirement account.

Examples include a transfer from a 401k to a traditional IRA, from a traditional IRA to a Roth IRA, or from a Simplified Employee Pension Plan (SEP) IRA to a traditional IRA. Rollovers are generally tax free unless the rollover is to a Roth IRA.

A direct rollover occurs when the funds from one eligible retirement plan are directly transferred to another eligible retirement plan or IRA account. In this case, the funds are never actually in your possession and there is no mandatory tax withholding.

In cases where a plan pay you an eligible rollover distribution, you have 60 days from the date you receive it to roll it over to another eligible retirement account. For taxable eligible rollovers from an employer-sponsored retirement account where you temporarily control the funds, a mandatory tax withholding of 20% applies, even if you intend to roll it over later.

“Backdoor” Roth IRA

A “backdoor” Roth IRA allows you to get around the limits of a Roth IRA. It does this by converting traditional IRA assets to a Roth IRA, so you can avoid the limitations that exist when you contribute directly to a Roth IRA.

You can roll (transfer money from a traditional IRA to a Roth IRA) as much money as you want from a traditional IRA into a Roth IRA. Many people choose this option when they can’t contribute directly to a Roth IRA (due to the income or contribution limits).

You may want to contribute as much money as you want to a retirement account but don’t want the distributions taxed later in life. If this is the case but you have income that exceeds the limits for a Roth IRA, you may be able to contribute to a traditional IRA and roll those funds over to a Roth IRA. There may still be some tax consequences when you convert from a traditional IRA to a Roth IRA.

There are 2 ways to do a backdoor Roth IRA (converting from traditional IRA to a Roth IRA):

  1. You can contribute funds to an existing traditional IRA account and/or sell shares or holdings and roll those into an existing Roth IRA account.
  2. You can convert the total assets in your traditional IRA account to a Roth IRA account.

Consider asking yourself these questions when determining if the Backdoor Roth IRA is for you:

Do you:

  • Want to contribute more than the yearly limits to your Roth IRA?
  • Earn $133,000 or more (single) or $193,000 or more (married filing jointly)?
  • Have gaps in employment and income unusually low for the year?

If these situations apply to you, you may want to consider a backdoor IRA.

A Backdoor Roth IRA doesn’t allow you to escape paying taxes, it simply helps you maneuver limit restricts for contributions. Before pursuing a backdoor Roth IRA, you may want to ask yourself a few key questions first.

Have you already taken a tax deduction on the money you are converting?

  • Are you converting contributions that you’ve already paid taxes on?
  • What kind of IRA are you converting to a Roth IRA (backdoor method)?

Reporting rollovers from one account to another through Credit Karma Tax is a simple process.

You should receive a 1099-R with a code G or H in Box 7. Enter the 1099-R as you see it on the IRA/Pensions.

The IRS website has additional information regarding IRA Contributions.

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