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In a previous tax year I rolled over some money from a former employer's traditional IRA (TD Ameritrade) to a non-Roth 401k plan (Milliman). I didn't report this on my federal tax return at all because I didn't know that it was being rolled over to a 401k account instead of an IRA account, nor did I understand the significance of this to even know to think about it as an important consideration. (I am not very experienced in the intricacies of retirement accounts and related tax burdens, though obviously it's time to correct that.)

Now the IRS is asking for me to pay taxes on the distribution from the IRA, not treating it as a rollover with no tax burden, because of the 1099R sent to them by TD Ameritrade. Milliman has insisted that they cannot produce a corresponding 5498 form because in fact the money did not go to an IRA (which they apparently don't offer) but to a 401k.

So, do I just pay the taxes and accept any penalties or fines, or is there some way that I can resolve this with no tax burden, or at least mitigate any fines, by sending them any documentation or showing somehow that I honestly believed I was doing the right thing?

I didn't detect my mistake and correct it during that year. Adding to my confusion at the time, the contributions are listed in online transaction history at Milliman as "Rollover Account." I also performed an unrelated Roth IRA rollover to Milliman from another institution that is listed as "Roth Rollover Account" (which there appears to be no issues with). It didn't seem to me at the time that there was any problem, since "IRA" and "Roth IRA" made sense to rollover to "Rollover Account" and "Roth Rollover Account." I now know there is a "Roth 401k" which I was ignorant of.

  • Was it rolled to a Roth 401(k)? If so, then yes you will owe the tax since you rolled from a tax-deferred account to an after-tax account. The good news is the growth from here on out is tax free. – D Stanley Oct 30 '18 at 20:20
  • No, it was not rolled over to a Roth 401(k). Was the way I said it confusing, that it was rolled over to a non-Roth 401k, as evidenced by it being placed in "Rollover Account" and not "Roth Rollover Account"? – ErikE Oct 30 '18 at 20:45
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    According to this IRS chart the only thing both IRA types can rollover to is a Roth IRA. irs.gov/pub/irs-tege/rollover_chart.pdf Are you sure that your Milliman account is not a Roth IRA? – Nosjack Oct 30 '18 at 21:38
  • I did a pre-tax IRA to 401(k) rollover a few years ago. Your Form 1099-R should show a taxable amount of $0. From what I have seen the IRS tends to assume whatever results in you owing the most taxes. I would write the IRS a letter that says you forgot to enter Form 1099-R with your taxes but it does not affect your taxes owed. They may want you to file an amended tax return. – Craig W Oct 30 '18 at 23:23
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    @Nosjack your statement above that an IRA can only be rolled over to a Roth IRA appears to be in error. One can rollover a traditional IRA to a non-Roth 401k (“Qualified Plan”, see footnote). – ErikE Oct 31 '18 at 16:27

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