If he didn't have to file, then neither do you.
a final tax return would be for tax year 2021 showing date of death - 2021.
But won’t they still want the taxes that he would have owed for the traditional IRA conversion to the ROTH? My Mom is still alive and they filed jointly (for all the years up until 2017 when he thought he didn’t make enough). He converted about $25,000 of her money too. Thanks for any help.
You should go to an accountant. Did she have any income in addition to the IRA conversion? She may need to file Joint returns for those years.
Only social security and very little interest and small MRD. But that’s kinda what I figured. That I would have to go back and file a joint return for them for the last 4 years. I don’t want to wait until she passes and then really have a mess with the estate.
We don't know if she needs to file for all those years but if there was any withholding taken out of the RMD or Social Security etc. she should file to get it back. Do you have all the 1099 forms and SSA-1099 for Social Security?
I think so. He kept every scrap of paper ever! I copied the 2020 things that he had in the folder. There were no federal taxes withheld for either. I’m assuming the 2017-2019 years were the same. I was worried about the 1099-R form to the IRS for the conversions. although they show taxable amounts but have an X by taxable amount not determined.
But then the Form 5498 shows a different amount. For example. In 2020 the 1099-R form shows $10,000.44 in gross distribution and also as the taxable amount, but the Form 5498 shows $9,000.44 for the Roth Conversion amount. So maybe the Ameritrade automatically paid the taxes? I’m so in over my head. Sheesh.
And 2017-2019 the difference was $2000 exactly between the two forms.
@Sksorensen77 wrote:
But won’t they still want the taxes that he would have owed for the traditional IRA conversion to the ROTH? My Mom is still alive and they filed jointly (for all the years up until 2017 when he thought he didn’t make enough). He converted about $25,000 of her money too. Thanks for any help.
You need to look at each year individually. It is not necessary to file every year, only years in which it was required. For example, if their income was below the filing threshold for 2017-2019, and they did a Roth conversion in 2020, then only a 2020 return would be required.
If their only taxable income was a Roth conversion of $10,000 per year, it won't be taxable, because it is less than the standard deduction for married filing jointly, which is $27,400 if they are both over age 65. That's also not enough income to make their social security taxable.
https://www.irs.gov/newsroom/dont-forget-social-security-benefits-may-be-taxable
For 2020, your mother may want to file a return even if it is not required, in order to get the 2020 (round 1 and round 2) and 2021 (round 3) stimulus payments. She would be entitled to payments for both her and her spouse for 2020 and 2021 if he died in 2021. To file a joint return for 2020, there is a check box to indicate the spouse died during 2021 (after December 31, 2020 but before the return was filed) and she can sign for him. (Or the IRS may have already paid the stimulus checks based on social security information, in which case there is no benefit to filing if not required.)
I can't explain the difference between the 1099-R and the 5498, if you don't understand it, you should call the broker. However, if the broker had withheld tax (taking $10,000 out of the regular IRA and putting $9000 in a Roth IRA) then the tax withheld would be shown in box 4 of the 1099-R.
If some of the conversions were larger, they might owe tax returns prior years. You would have to purchase, download and install the software if you want to use Turbotax to figure it out for you (but I don't know that you want to pay for software that you end up not using because it turns out no tax is owed. You might be able to get a refund from the 60 day money back guarantee policy.)
you didn't say he was married with a surviving spouse.
the 2020 tax return and the 2021 tax return should file status MFJ.
With the high standard deduction, it's still possible the tax due is zero for those other years.
you can prepare the tax returns manually without tax software.
other tax software for prior years can be had for less money than TurboTax charges.
you can do the 2020 return via the IRS free file program that will do the return for no cost.
Thank you so much for such a detailed answer...2020 was his biggest conversion and that was the $10,000. Otherwise it was always less than that. I guess I always was under the impression that the government always wanted their cut of a conversion reguardless of if you were basically penniless! Lol
I will call the broker about the difference. Nothing was listed in the box for them withholding, so my assumption is that my Dad just kept some out.
Since I had bought TurboTax, I did put their numbers in for 2020 without actually doing much of the work, just to see if they might owe something. I'm more worried about penalites and interest if I didn't do something correctly.
They have gotten all 3 of their stimulus checks. They were direct deposited. The third one came about 4 days after he died (March 2021), and my Mom is super worried that she will need to pay it back, but from what I can see, I think that she will be ok.
Do you think I can just do a 2021 joint for them, or should I also do a 2020 late?
Thanks for everyones help...I taught middle school science for 33 years, and am pretty much in way over my head...
They can file a tax return for 2020 even if no tax is owed, although it is not necessary. Likewise, your mother can file a joint return for 2021 since her husband died during 2021, but it is not necessary if no tax is owed.
I believe that the $1400 round three stimulus payment follow the same legal language as the round one and round two payments. In that case, your mother will not have to repay the payment that was received for your father even though he died during the year. Since he would be included on the joint tax return for 2021 (if they file one) he qualifies for either the stimulus payment or the rebate.
The “government always gets it cut” is true, at least in the sense that taxable income must always be reported. But as long as their taxable income was less than $27,000, no tax is actually owed. If their only income with Social Security plus a Roth conversion of $10,000 or less, they should not owe any income taxes.
Did you actually prepare a 2020 tax return for them using the TurboTax software? What did it say the outcome was?
Turbo Tax although good, sometimes it doesn't ask exactly the right questions. When I first put their info in, it said that their taxable income was $ 174.00. So no taxes owed. But as I was reading some articles on this Roth conversion thing...the Turbo tax program said something about a 5329-S form. So I searched for it within the program and put the $ 10,000 in and then it said that they owed "other taxes". $600 for Fed and $150 for state (WI). But I really had to answer some questions that didn't really pertain to their situation...so I bet if I hadn't looked for that form, it would have remained at zero.
I'm thinking I might wait and just do the 2021 taxes for them with his death. He didn't convert anything in the beginning of this year, and see if that generates any red flags.
Be careful about adding new forms because of advice that may not apply to you. If the program doesn’t indicate you need a form, you probably don’t. Form 5329 is used to report extra taxes (penalties) on distributions from qualified plans, such as the 10% penalty for early withdrawal. In the case of TurboTax, 5329-T and 5329-S refer to “taxpayer“ and “spouse“. The taxpayer is the person who is listed first on a joint return and whose name appears on the top line of the printed return.
In this case, if the rollover was made by your father and your father is the top listed taxpayer (which is usually the case), then if you need the form at all, it would be a 5329-T. You would only need a 5329-S if the rollover was in the name of the taxpayer who is listed as the spouse on the tax return.
Form 5329 is not required when doing a conversion from a traditional IRA to a Roth IRA.
It might be required if your father did not take his RMD, or required minimum distribution from his IRA. A Roth conversion does not qualify as an RMD because the RMD must actually be withdrawn and put into regular funds, and can’t be put into a different tax qualified plan.
If your father has been putting his RMD into a Roth IRA for the past four years, then you probably do need to file the last four years of tax returns and pay the penalties on the missed RMD‘s. I’m concerned that you have gotten yourself confused, and I think it would pay for you to have the situation reviewed by an expert. A simple IRA to Roth conversion does not require form 5329 unless something improper has been done along the way.
No one is ever asked to return a stimulus payment.
Many people don't realize that a decedent in 2020 gets the stimulus payments also.
Form 5329 has nothing to do with a Conversion to Roth IRA.
Your original result of $174 taxable income is likely correct.
TurboTax Online won't even let you add a Form 5239 manually.
TurboTax asks all the relevant questions, you have to pay attention and answer carefully.
Good knowledge on the 5329 forms. I was able to somehow generate it through Turbo tax. In 2017 he converted $7,000 for himself (and that was his only year for him), and $7,000 for my Mom. in 2018 he converted $4,000 for my Mom, 2019 he did $ 5,000 for my Mom and 2020 he did the $ 10,000. Now all of my Mom's traditional IRA has been converted to a ROTH IRA. So neither of them have money in a traditional IRA anymore at that broker.
They have both taken regular and correct RMD's each year. I'm thinking that she should be ok with just filing this year with him passing away even though she probably still won't need to based on income.
Depending on which version of TurboTax you are using, you can create additional forms manually, even if you don’t need them. If you actually tried to file the return, software would probably throw an error. Creating the manual forms and forcing the program to file will void the accuracy guarantee.
Based on your figures, and assuming that there is no other taxable income, and that your parents only other income with Social Security, no tax return would be required to be filed for any of those years. You can certainly file if you want to, to put something in the IRS system.