I get asked a lot about rolling over assets from one plan to another, especially self directed 401k plan rollovers. Sometimes even the company doing it for you leaves out pivotal forms.

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Transcript:   With regard to 401K plans, if you are rolling over any funds from an old 401K plan that you participated in before or an IRA, those are going to be rollovers and there’s very specific IRS rules pertaining to that rollover which must occur. I’m not suggesting that you not rollover funds into your new plan. Of course you would, or of course you probably would like to do that. What I specifically mean is you want to make sure that before you do that you exactly know what the IRS rollover requirements are. Quite honestly, this is an area that some companies actually make mistakes with. Let’s use a hypothetical example. If you had a hundred thousand, you set up a brand new 401K plan, and you’re wanting to rollover a hundred thousand from an IRA plan that’s in your name or an old 401K which you were a participant of, those funds can be rolled over to that new plan. A lot of the companies out there, the financial services companies, will not issue the correct paperwork related to that rollover. They call it a custodian to custodian transfer. In their world they think it is absolutely permissible for that rollover to occur from that IRA to the new 401K plan, your self directed 401K plan, without reporting anything to the IRS. In my humble opinion, that is flat wrong. Any time a rollover occurs and funds get moved into a qualified plan, such as a 401K, a rollover has to occur, a 1099 has to be issued, and you have to report it on your 1040 tax form with the assistance of your tax professional. Let’s break that down a little bit more. The originating custodian, or the company that held that IRA, for example, must send a 1099R to you reporting that it is a qualified rollover, it must be coded as a G which just means that it’s going to a qualified plan. Who gets that? You get a copy of that, the IRS gets a copy of that. Basically when the IRS gets it they see that on paper anyway, a hundred thousand was in the IRA, a hundred thousand got moved into the 401K as a permissible rollover. That effect is zero, no taxable event to you as long as everything was done correctly. Like I mentioned, some of these companies, they’re not preparing the 1099R. As I mentioned, in my humble opinion, that’s a mistake. Moral of this story is if you rollover funds into your 401K plan you must make sure that a 1099 is being issued for that rollover. Likewise, you must consult with your tax professional to make sure that that rollover is correctly reported on your 1040 tax form. Solo 401K’s are awesome, but this is just a continual effort to show people that you have to do it the right way.