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There are tons of results when you Google "how to do a Roth indirect transfer". But each article is 95% the same and doesn't provide enough details on tax reporting. Or they only provide tax reporting for a 401k rollover. I need a sanity check of the steps below (say the account has $2,000):

  1. I liquidate a Roth IRA at Brokerage A and transfer the money to my checking account. I opt-out of withholding (it's a small account) because I know it's a transfer and not taxable.
  2. I call Brokerage B to complete an indirect transfer. They withdraw the full amount from my checking account into a new Roth IRA.
  3. Brokerage A sends me a 1099-R, distribution code J (premature withdrawal), amount $2k.
  4. When I file taxes next year, I put $2k as a distribution and $0 as the taxable amount.
  5. In May of next year (after filing), Brokerage B sends me a Form 5498 showing a Roth rollover contribution (Box 3) amount of $2k. I keep this as "proof" that I actually did the rollover.

Is this the correct process? Are there any steps or tax forms I'm missing?

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Yes, and steps 1 and 2 must be within 60 days, and you can only do this at most once in any 12 months. You can keep the IRA statements to prove the dates when they happened, though you would not normally need to provide this with your tax return. Brokerages A and B can be the same brokerage (i.e. you can "borrow" the money for less than 60 days and return it to the same place). When you file your tax return (form 1040), you would put $2k in line 4a, 0 in line 4b, and write "ROLLOVER" in the line above the dotted line before line 4b.

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  • Thanks. Should I disregard any fees charged by Brokerage A in the rollover amount? Or is the amount deposited with B the net amount I actually receive from A?
    – Nosjack
    Commented Apr 12 at 14:15

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