Is my ROTH conversion income an IRA Qualified Distribution?

[CindyKR]

 I do not receive SSI yet and am not full retirement age yet.  I converted part of a personal (not connected to work) Traditional IRA to a ROTH IRA in 2024. The TurboTax Arkansas State Product wants to know what type of distribution it was. Do I select IRA with a qualified distribution?

[SabrinaD2 · Accepted solution]

When you convert a traditional IRA to a Roth IRA, it is likely not considered a "qualified distribution." Instead, it is a taxable event where the converted amount is added to your income for the year. Here's what you need to know:

• Type of Distribution: In TurboTax, you should select "IRA with a non-qualified distribution" for your Roth conversion - unless you meet the  criteria under *Is it Qualified below.
• The amount converted from your Traditional IRA to your Roth IRA will normally be included in your taxable income for 2024.
• IRS Rules: The IRS specifies that conversions are taxable events because they involve moving funds from a tax-deferred account to a tax-free account

*Is it Qualified:

• A qualified distribution is one that is made :
  • at least five years after the year of the participant's first designated Roth contribution (counting the first year as part of the five) and is made: 
  • On or after attainment of age 59½, On account of the participant's disability, or. 
  • On or after the participant's death.

Entering in TurboTax:

1. Open Your Return: Log in to TurboTax and open your tax return.
2. Search for 1099-R: Use the search box (magnifying glass icon) at the top right, type "1099-R," and click on the "Jump to 1099-R" link.
3. Enter 1099-R Information: Enter the details from your 1099-R form. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
4. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
5. Continue through the questions.

Original Post

[CindyKR]

OK. So, the answer is no, my IRA was not a qualified distribution.

I was very confused. TT seems to have already known I owe taxes on the conversion based on my other input. But, I did not understand what a qualified IRA was and that it is usually in relation to an employer-based IRA. I went back and changed it in TT, but it doesn't seem to have made a difference since I was already paying taxes on it on form 1040.

I am glad to know about this, though, because I have inherited my spouse's 401(K) which includes some ROTH stuff.  I guess I need to see how I will need to treat it when I withdraw or convert it.

The link to the IRS site about "Retirement topics - Designated Roth account" was also helpful. Thanks.