How To Report a 401k Rollover on a Tax Return: Forms, Rules, and Reporting Steps

Depending on the type of IRA selected, this may provide broader investment options, greater withdrawal flexibility, and—in some cases—the opportunity to continue contributing to a US retirement account while overseas.

However, filing an annual US tax return from abroad is already a complex process, and the requirement to report a 401(k) rollover can add further complications.

If you qualify as living and working outside the United States, you generally benefit from an automatic two-month filing extension, with the option to extend further via Form 4868.

In this guide, we’ll explain how to report a 401k rollover on a tax return, detailing the relevant forms and reporting steps. We also outline the rules for 403(b) rollovers, transfers between IRAs, and the ways in which a qualified tax adviser can assist with accurate rollover reporting.

Do I Need To Report a 401(k) Rollover on My Tax Return?

Whether you transfer your 401(k) to a traditional or a Roth IRA, you must report the rollover on your tax return. However, depending on the IRA account and the rollover option you opt for, you’ll have to file specific 401k rollover tax forms. There are two types of rollovers you can consider:

1. Direct rollovers
2. Indirect rollovers

Direct Rollovers

A direct rollover involves a direct transfer of your 401(k) funds to a traditional or Roth IRA account. No funds are paid to you, so the process avoids the 60-day redeposit rule that applies to indirect rollovers.

A rollover to a traditional IRA is tax-free because you’re moving funds between accounts with the same tax treatment, as a traditional 401(k) and a traditional IRA both accept pre-tax contributions.

Nevertheless, it must still be reported to the IRS. Moving money from a non-IRA employer plan to an IRA is considered a distribution for reporting purposes, even when no tax is due.

If you transfer a traditional 401(k) to a Roth IRA, this process is called conversion because it involves converting pre-tax 401(k) funds to a Roth IRA, which accepts post-tax contributions. In this case, you must report the entire rollover amount on your annual tax return and pay income tax on the transferred funds.

Indirect Rollovers

With an indirect rollover of a 401(k) to an IRA, you receive the rollover amount and deposit it into a traditional IRA. You must deposit the funds within 60 days of receiving them. Otherwise, you’ll be liable for income tax on the rollover amount and will have to pay a 10% early withdrawal penalty if you’re under the retirement age of 59½.

Indirect plan distributions are subject to mandatory 20% federal withholding. This is a prepayment/credit towards your tax liability, it will be refunded only if your total withholding and credits exceed your overall tax due.

For instance, if you decide to roll over $10,000, you’ll receive $8,000 because the 401(k) administrator withholds the 20%. You must still deposit the full $10,000 to an IRA, meaning you must secure the withheld $2,000 yourself. If you don’t, you’ll have to pay income tax on the $2,000 and a 10% early withdrawal penalty if you’re under 59½.

How To Report a Rollover From a 401(k) to an IRA?

Before filing your annual US tax return (generally due on 15 April, or 16 June if you qualify for the automatic two-month extension for taxpayers living abroad), you must collect the necessary information to report your rollover correctly. That includes:

• Knowing what types of retirement accounts are involved in the rollover (for instance, a 401(k) and a Roth IRA) since this impacts tax liability.
• Determining whether you have any non-deductible or after-tax contributions in your rollover account, as these amounts are not taxable and must be reported separately, usually on Form 8606.

In case of an indirect rollover, you must also determine:

1. How many days passed between receiving and depositing funds to a new retirement plan (60 days is the deadline to avoid tax penalties).
2. If you made another IRA-to-IRA rollover within the last 12 months. Note that only one such rollover is allowed per year under IRS rules. This limit does not apply to rollovers from a 401(k) or 403(b) to an IRA.
3. Whether the 401(k) plan provider withheld the 20% mandatory tax.

Once you collect this information, you must fill out specific forms depending on the type of rollover you choose.

Where To Report Direct Rollovers

If you opt for a direct 401(k) rollover, you will receive Form 1099-R from your former employer or 401(k) administrator. Use the information from this form to complete your Form 1040.

When you receive the 1099-R, check that it is correctly labelled as a direct rollover and includes the following information:

If a portion of the distribution is directly rolled over to an IRA and another portion is distributed to you, the 401(k) provider must prepare two Forms 1099-R.

After this, you need to fill out Form 1040—an individual tax return—entering rollover information like:

Where To Report Indirect Rollovers

In case of an indirect rollover, your 401(k) administrator will fill out and send you Form 1099-R. You need to use the information provided in the form to complete Form 1040.

You need to roll over the full distribution amount (including any amount withheld for federal tax) within 60 days to avoid tax and potential penalties. The amount withheld (shown in Box 4 of Form 1099-R) will be credited against your tax liability and may be refunded if your total withholding and credits exceed your tax due.

The total distributions must be reported on line 5a of Form 1040, while the withheld federal tax should be reported in the following places:

1. In box 4 of Form 1099-R
2. On line 25b of Form 1040

If you miss the 60-day deadline, the rollover becomes a taxable event, meaning you must report the amount you failed to deposit on line 5b (taxable amount) on Form 1040.

For both direct and indirect rollovers, the trustee of your IRA will send you Form 5498 (typically by the end of May) to confirm the rollover to an IRA was done correctly and the transferred amount was reported to the IRS.

This form is only for informational purposes and you should review it to ensure the rollover is successful, but you don’t have to file it with your tax return.

Ensure you file a tax return correctly after a 401(k) rollover by consulting an expert. Our financial advisers at Titan Wealth International provide a complimentary 401(k) to IRA rollover assessment to help you streamline your retirement savings consolidation and minimise tax liabilities.

Do I Need To Report a 403(b) Rollover to a Traditional IRA on My Taxes?

You need to report 403(b) rollovers using the same forms you’d use for a 401(k) rollover to an IRA. 403(b) rollovers can also be direct and indirect, and the taxation of a rollover amount will depend on the IRA to which you transfer your retirement savings. Since 403(b) plans are tax-deferred, direct transfers to traditional IRAs will be tax-free.

Do I Need To Report an IRA Rollover on My Taxes?

If you’re rolling over retirement savings from a non-IRA plan like a 401(k) to an IRA, you must report the rollover on your tax return. However, moving funds from one IRA account to another directly is typically a non-reportable event, meaning you don’t have to file a tax return.

This only applies if you’re moving funds between IRAs with the same tax treatment. If you want to roll over a traditional IRA to a Roth IRA to gain more flexibility over your investments and withdrawals, you must convert pre-tax traditional IRA funds to post-tax Roth funds. In this case, you must file Form 8606 to report the converted amount.

How Can a Tax Adviser Help You File a 401(k) Rollover Tax Form?

Consulting a tax adviser can ensure you choose the best rollover strategy for your retirement goals and file the necessary forms correctly. More specifically, a tax adviser can assist you by doing the following:

1. Providing advice on the rollover type
2. Reviewing tax forms

Provide Advice on the Rollover Type

Before the rollover, a tax adviser can assess your 401(k) and advise on whether you should opt for a direct or an indirect rollover. The latter is typically only recommended if your 401(k) provider doesn’t allow direct rollovers.

A tax adviser will help you determine the amount of tax you owe on the rollover amount depending on the IRA you’re transferring retirement savings to. This is especially helpful if you’re moving funds between accounts with different tax treatments, like:

• Converting 401(k) savings to a Roth IRA
• Transferring a Roth 401(k) to a Roth IRA

Review Tax Forms

A tax adviser can review Form 1099-R to ensure your 401(k) provider entered the correct information. They can also help you use the information from Form 1099-R to complete Form 1040 with the correct amounts, ensuring you don’t skip any fields or include the wrong information.

If you opted for an indirect rollover and missed the 60-day deadline due to circumstances beyond your control (like an error committed by your financial institution), a tax adviser can assist you with obtaining a waiver. They can help you determine if you:

1. Qualify for an automatic waiver
2. Need to file a written self-certification requesting a waiver
3. Must request and receive a private letter ruling granting the waiver

You typically qualify for an automatic waiver if the financial institution made the mistake. If you missed the deadline for another reason, a tax adviser can provide guidance with a self-certification or private letter ruling, whichever is more suitable for your circumstances.