Solved: Existing IRA with NO contributions moved by the financial institution to a ROTH. Now the entire amount from the 1099-R shows in AGI and Tax Due is HUGE.
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New Member

Existing IRA with NO contributions moved by the financial institution to a ROTH. Now the entire amount from the 1099-R shows in AGI and Tax Due is HUGE.

I am doing my father-in-laws (78 years old) taxes.   They are fairly straightforward with one exception.  

He had a traditional IRA that his bank moved from one institution to another and converted to a ROTH in the process.  This original IRA existed PRIOR to 2017 but had no contributions in 2017.  

Using the 1099-R I was able to successfully navigate my way to where I could enter the 1099-R

I Chose that it WASN'T an RMD, which allowed me to choose that he converted the money to an ROTH IRA account.

I then chose the money was left in the ROTH with these options

  • No HSA
  • Value of IRA on 12/31/17 = 0
  • Outstanding Rollovers = 0
  • Outstanding Re-characterizations = 0

After this, the Total income refects the IRA in it's number and tax due is very large (keep in mind 22K of the 110K IRA was held for taxes).

He had about 39K in other 1099-R for his and his wife's pension.

He had 35K in SSA.

His adjusted gross income is listed as ~184K.  Which can't be right, can it?  This tax bill is over 15K between FED/MO and 22K of the IRA was held for taxes.  

Surely I'm missing a form, or a number somewhere?

The ONLY last wrinkle that I'll add is that his wife did pass in 2017.  The IRA was originally in her name, but the back converted it to HIS name prior to the move to a ROTH.  The 1099-R for the distubution is in his name.

For Reference: 

  • IRA 1099-R (7 - Normal Dist)
  • Gross Dist.: 110,389
  • Taxable Amount: 110,389
  • Fed Tax Withheld: 22,077
  • New ROTH Balance: 88.311
1 Best answer

Accepted Solutions
Level 13

Existing IRA with NO contributions moved by the financial institution to a ROTH. Now the entire amount from the 1099-R shows in AGI and Tax Due is HUGE.

If I understand you correctly, your father-in-law converted a traditional IRA to a Roth IRA. A traditional IRA is pre-tax; a Roth IRA is post-tax. This means that when the traditional IRA is rolled over to a Roth IRA, you must declare the entire distribution as a taxable event, so that the money in the Roth IRA will be post-tax.

Did no one at the bank explain this consequence to your father-in-law?

See https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-rollovers-and-roth-convers... for the usual treatment of how this rollover is handled (at the bottom).

What you should do is contact the bank and ask them to recharacterize this rollover from Traditional IRA to Roth IRA to be a traditional to traditional, which would maintain the pre-tax status of the money in the IRA.

However, this may no longer be possible. The IRS says:

"Can I recharacterize a rollover or conversion to a Roth IRA?

Effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act (Pub. L. No. 115-97), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.

How does the effective date apply to a Roth IRA conversion made in 2017?

A Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018. A Roth IRA conversion made on or after January 1, 2018, cannot be recharacterized. For details, see “Recharacterizations” in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)."

Please see https://www.irs.gov/retirement-plans/ira-faqs-recharacterization-of-ira-contributions

View solution in original post

3 Replies
Level 13

Existing IRA with NO contributions moved by the financial institution to a ROTH. Now the entire amount from the 1099-R shows in AGI and Tax Due is HUGE.

If I understand you correctly, your father-in-law converted a traditional IRA to a Roth IRA. A traditional IRA is pre-tax; a Roth IRA is post-tax. This means that when the traditional IRA is rolled over to a Roth IRA, you must declare the entire distribution as a taxable event, so that the money in the Roth IRA will be post-tax.

Did no one at the bank explain this consequence to your father-in-law?

See https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-rollovers-and-roth-convers... for the usual treatment of how this rollover is handled (at the bottom).

What you should do is contact the bank and ask them to recharacterize this rollover from Traditional IRA to Roth IRA to be a traditional to traditional, which would maintain the pre-tax status of the money in the IRA.

However, this may no longer be possible. The IRS says:

"Can I recharacterize a rollover or conversion to a Roth IRA?

Effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act (Pub. L. No. 115-97), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.

How does the effective date apply to a Roth IRA conversion made in 2017?

A Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018. A Roth IRA conversion made on or after January 1, 2018, cannot be recharacterized. For details, see “Recharacterizations” in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)."

Please see https://www.irs.gov/retirement-plans/ira-faqs-recharacterization-of-ira-contributions

View solution in original post

New Member

Existing IRA with NO contributions moved by the financial institution to a ROTH. Now the entire amount from the 1099-R shows in AGI and Tax Due is HUGE.

@TurboTaxBillMc .  I think you just nailed it.   As much as it hurts, thank you for helping make it clear.
Level 13

Existing IRA with NO contributions moved by the financial institution to a ROTH. Now the entire amount from the 1099-R shows in AGI and Tax Due is HUGE.

The advantage to a Roth IRA is that earnings in the Roth are NEVER taxed even when withdrawn, while earnings in a traditional IRA are taxed when withdrawn. Still, this is a better deal for younger people than for those near retirement age.
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