Roth Conversion

Forum|Forum|5 years ago
January 1, 2021
2 replies
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If I did a $3000 Roth Conversion and had $300 taxes taken out, what amount do I enter when the program asks How Much of the $3000 was converted to a Roth ? Do I enter the $3000 or $2700. $3000 came out of my traditional IRA but only $2700 ended up in my Roth account.

Bsch4477

Level 15

See @dmertz answer. He is a recognized expert in retirement tax law.

dmertz

Level 15

Since you did not substitute other funds to replace the $300 that was withheld for taxes, only $2,700 was converted. Telling TurboTax that you converted $3,000 implies that you substituted other funds within 60 days of the distribution from the traditional IRA and you ended up with $3,000 moving to the Roth IRA.

If you are under age 59½:

The $300 that was not converted to Roth is subject to a 10% early distribution penalty on the taxable amount (usually the entire $300) in addition to the income tax.
Assuming that the conversion was done by direct transfer, you should receive two Forms 1099-R, one with code 2 showing a distribution of $2,700 that was converted to Roth, none of which was withheld for taxes, and a code 1 Form 1099-R showing a distribution of $300, all of which was withheld for taxes. However, some custodians mistakenly report the entire $3,000 and tax withholding together on a single code 2 Form 1099-R making it difficult for you to report the distribution properly so that your tax return show the correct penalty.

If you were over age 59½ at the time of the distribution from the traditional IRA:

The entire $3,000 distribution and tax withholding will will be reported on a single code 7 Form 1099-R.

Note that telling TurboTax that you converted $3,000, which is incorrect, won't produce an incorrect taxable amount on line 4b of your Form 1040, but it will cause TurboTax to generate an incorrect Form 8606.