Basis of Retirement Income - PA (Traditional IRA Rollover to Roth)

[EcstaticKey]

Hi everyone!

I’ve read a few forms addressing this similar question, but I can’t wrap my head around what I’m supposed to do for my specific situation. I transferred $15k from my 401k to a Traditional IRA and then rolled it over to a Roth IRA. I received a 1099-R for the Roth IRA. Box 1 and 2a are both $15k, both boxes for 2a are checked: taxable amount not determined and total distribution, box 7 has the number 2. What is my basis, is it $0 or $15k?!? And can you please explain it as simple as possible!

TIA!!!

[MaryK4]

Your basis is zero.  Because it was deferred compensation in the 401k (pre tax contributions from your wages) there was no basis when you transferred it to the traditional IRA.  Hence, there was no basis when you moved it to the Roth IRA (which is the question TurboTax is asking-  the taxable amount is Box 2a indicates this, but there are occasions that the issuer of the 1099-R does not know the entire situation.)

If you had basis, it would mean that you paid tax on the money at some point (which gets more difficult with time and more movement)- but in your case it is a clean move.  Let me know if you have any other questions.

[EcstaticKey]

Hi @MaryK4 !

Thank you so much for responding, your response was clear and easy to understand!

I have another question though - when I put $0, it has me owing state tax vs. if I put $15k I don’t. Since PA taxes money added to 401K, why do I need to pay more state tax?

[ThomasM125]

You are correct, your rollover to the ROTH IRA should not be taxable in Pennsylvania.

When you go through your Pennsylvania tax return, you will come to a screen that says What kind of retirement income do you have from Pennsylvania? You need to choose the "Rollover" option on that screen to exempt your IRA recharacterization from taxation.