Converting to Traditional IRA to Roth IRA

[tractng]

Hello,

I have $1500 non deductible contributions made in 2019 (have FORM 8606).  The account is now $2500.  It was an oversight on my part to open the Traditional IRA when I was qualified for the Roth IRA.  Anyways I want to consolidate this small account.  The account is at TIA-CREF.  I also have a Roth IRA there.  I want to convert and move it the Roth IRA. Is that doable?

Also if I do the conversion as of this month, the tax on the earning will be paid next year when I do the tax filing and also use FORM 8606?  Is that simple to do using Turbo Tax software?  I have been using Turbo Tax for over a decade.

Thanks,

TT

[Opus 17]

Yes, you can convert the IRA to a Roth IRA.  From your figures, $1000 will be taxable.  You will receive a 1099-R from the plan custodian. Your tax return will use form 8606 to calculate the tax on the conversion and show your remaining basis in traditional IRAs (which should be zero).  Turbotax can do this, it will ask you for some numbers from your most recent (2019) form 8606.

You could make an estimated payment for the tax at www.irs.gov/payments.  If you over-pay the estimate, the difference will come back to you as a tax refund.  However, since the tax is likely to be $240 or less, you can probably just let it ride until you file your return, that amount of tax owed should not be enough to trigger any penalties unless you are already under-withheld on your other income. 

[tractng]

So now that I know the conversion would be fine from Traditional IRA to Roth IRA, is it doable to "move" into the existing Roth IRA?  If so, its it advisable?

I am thinking the two steps process..

1) convert

2) move to the existing Roth IRA

Thanks again.

TT

[Opus 17]

One step.  It's just a rollover from account A to account B, both at TIAA.  It will automatically be treated as a conversion as well.

If you are familiar with the generic concept of a rollover (transfer from one IRA account to another, at the same or different custodian), then a conversion is just the name of a specific type of rollover -- from a traditional to a Roth IRA, where some or all of the rollover amount is taxable. 

[tractng]

Thank you for the explanation and terminology.  I did call TIAA to execute the rollover with no tax withheld.  I was surprised the rep wasn't able to tell me the total non deductible amount in that account.

So when I get a FORM 1099R, would it tell me what the earning from this account or is that my responsibility?  Like I mentioned, I have the Form 8606 from 2019 Tax filing.

Thanks again.

TT

[Opus 17 · Accepted solution]

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@tractng wrote:

Thank you for the explanation and terminology.  I did call TIAA to execute the rollover with no tax witheld.  I was surprised the rep wasn't able to tell me the total non deductible amount in that account.

So when I get a FORM 1099R, would it tell me what the earning from this account or its that my responsibility on my end?  Like I mentioned, I have the Form 8606 in 2019 Tax filing.

Thanks again.

TT

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It's all on you.  TIAA doesn't know the non-deductible amount because they can't see your tax return and they don't know whether or not you took a tax deduction.  They will provide a 1099-R that shows the total amount as a conversion to Roth IRA with code 2 or code 7 in box 7, and "taxable amount not determined" in box 2b.  You will use the information from the 2019 form 8606 to create a new form 8606 with your 2024 return that will document the basis and calculate the taxable part of the conversion. 

[tractng]

Thanks again!