How come my IRA distribution that I converted to a Roth is showing up on Turbo Tax as "taxable income"?

Hi jbassman,

What might be happening is that the original contribution to the traditional IRA account provided an income tax deduction. Regular IRA contributions almost always reduce the income tax in the year the contribution was made. Thus, when you convert the traditional IRA to a Roth IRA, it is a taxable event. Here's why: You would not have received the income tax deduction if you had contributed to a Roth IRA instead of the traditional IRA.

That said, if you did not receive a deduction at the time of contribution (this happens if you are higher income) then your IRA has "basis." However, if the account grew in size, then the earnings will still be subject to ordinary income rates on the conversion to the Roth IRA.