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Mariam asks:

When I do a rollover of a company 401K to a self directed IRA, do I need to report this rollover to the IRS? I got the impression that I do but I don't understand why. Why does the IRS care if I did a rollover?
Same question with a traditional IRA that I've transferred from one broker to another... is this considered a rollover and does it need to be reported to the IRS?

The IRS cares about these distributions because it is charged with collecting taxes due on any income not previously taxed. Transfers of funds from a qualified retirement plan (e.g., a 401(k)) to an IRA or from one IRA to another are considered distributions from those vehicles. As such, they are potentially taxable, so they must be reported to the IRS. Therefore, plan administrators and IRA providers will send you and the IRS a Form 1099R showing any removal of funds that occurred during the tax-year. You, in turn, report that distribution on your return; however, you also only report the taxable amount of the distribution for taxation purposes. That means you will exclude that amount from income when you have transferred the money to another plan or IRA. There are lines on your income tax-return to show all that.


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