In fact, many tax preparers I know are dealing with a rash of IRS letters over the last couple of years. The taxpayer has a 1099-R with code G (direct rollover) which tells the IRS that it was rolled over straight from one bank to another. Yet the taxpayers are still getting letters from the IRS asking for proof that the funds were rolled over.
In explaining why they’d question such a clearly documented non-taxable event, an IRS agent told me the letter was generated because the 5498 didn’t match up in some way.
Absolutely yes and all of the above is Quoted For Truth. We’ve been audited by mail twice in the past 3 years and a rollover distribution was the cause of one of them..
Heh - yeah, that part’s gotta be painful. On the other hand, you won’t pay any taxes on that money ever again no matter how much it grows, which will be nice! (I know you know that, but others in the thread might not). I wish I had the spare cash to convert some of my traditional IRA money!!
With all of the caveats and recognizing there are special circumstances:
I would expect you to not have to pay taxes on the the rollover. If the source didn’t somehow thought it was going to a traditional IRA instead of a Roth, that would explain their error. But it is still and error that has to be fixed unless you want to gamble that no software or human reviews will ever catch it.
In any other situation, rolling money from a pretax vehicle to a Roth would trigger the need to pay taxes. Why do you think the OP would not, in this case? Not being snarky, I’m genuinely curious - maybe you know something about that area of tax law that the OP doesn’t (and I admit I’m strictly an amateur as well).
Are you sure the receiving account was a Roth IRA and not a traditional IRA?
I think tim is saying that the pension fund wouldn’t automatically deduct taxes on the rollover, not that no taxes would be due. Clearly they will be, since otherwise everyone would roll their trad IRAs and 401(k)s into a Roth IRA and never pay any taxes at all.