Yes, rollovers between retirement accounts generally need to be reported to the IRS, although the reporting requirements and tax implications differ depending on the type of rollover (direct or indirect).
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Reporting direct rollovers
In a direct rollover, the funds move directly from one retirement account to another without the account holder taking possession of the money at any point. These types of transactions are typically not taxable events as long as the funds are moving from pre-tax to pre-tax, or Roth to Roth.
The financial institutions involved in the transaction will report the rollover or transfer to the IRS on Form 1099-R (for the distributing account) and Form 5498 (for the receiving account). As an account holder, you do not need to report these transactions on your tax return, but you should keep records of the transaction for your records.
Reporting indirect rollovers
An indirect rollover occurs when the account holder takes possession of the funds from the distributing retirement account and then deposits the funds into a new retirement account within 60 days. Indirect rollovers are subject to mandatory 20% withholding for federal income tax.
The account holder must report the rollover on their tax return using Form 1040 (or 1040-SR if age 65+) and include the taxable portion of the distribution in their taxable income for the year. If the rollover is completed within the 60-day window and the account holder replaces the withheld amount with other funds, no taxes or penalties will apply. Failure to complete the rollover within 60 days may result in taxes and penalties.
Are the forms the same for an IRA rollover and a 401k rollover?
Yes, the forms used to report IRA rollovers and 401k rollovers are generally the same. Both types of rollovers involve moving funds from one retirement account to another and are reported to the IRS using the following forms:
Form 1099-R: Issued by the financial institution managing the distributing account (the account from which the funds are being rolled over). Form 1099-R reports the distribution amount and any taxes withheld. The account holder will receive a copy of this form, which they may need to reference when filing their tax return.
Form 5498: Issued by the financial institution managing the receiving account (the account to which the funds are being rolled over). Form 5498 reports the rollover contribution, along with any other contributions made to the account during the year. The account holder will receive a copy of this form for their records, but it is not typically required when filing their tax return.
What happens if I forgot to report the rollover in my original tax return?
If you failed to report the rollover in your original tax return through Form 1099-R, then you will need to report your rollover on Form 1040X: Amended Return and complete and file your amended return.
What about transfers?
A transfer if the moving of assets from two accounts of the same type. For example, moving assets from one traditional IRA to another traditional IRA or from one 401k to another 401k. Unlike rollovers, transfers do not need to be reported to the IRS and there is no limit to the number of transfers you can make in a year.
Also read: Transfers vs Rollovers
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