Last year, my wife rolled two 401(k)s into 1 Roth IRA. One 401(k) had only designated Roth balances. The other had designated Roth balances and pre-tax balances (from her former employer’s match).

Let’s say the first 401(k) – the one with only designated Roth balances – had $5000 in total that was rolled over (I think that is the term, but the all the terms are so confusing). Of that $5000, only about $4000 was her contribution. The rest was gained in the market.

For the other 401(k), let’s say it was $50000 in total, but half was a designated Roth balance and the other half was the pre-tax employer contribution. Of that designated Roth balance, roughly $25k, about $20k was her contribution. The rest was gained in the market. Similarly let’s say the pre-tax employer contribution was $20k, and the rest was gained in the market.

What gets reported on Line 16b of Form 1040? I believe, in this example, Line 16a should be $55000. I *think* Line 16b should = $25000, with the word “rollover” written into the margin.

But the Instructions for Form 1040 Line 16 for 401(k)s has me believing that the gains need to be teased apart for taxing purposes? The instructions are:

“Enter on line 16a the distribution from Form 1099-R, box 1. From this amount, subtract any contributions (usually shown in box 5) that were taxable to you when made. From that result, subtract the amount of the qualified rollover. Enter the remaining amount on
line 16b.”

That seems to indicate that I take $55k and subtract only $24k, reporting $31k as income? That doesn’t seem right, does it?

And does any sort of income limit apply on such a transaction?

Thanks!