Properly report simple transition from Roth to tra...
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Yc6vo4c12Mmz
Level 1

Properly report simple transition from Roth to traditional

Hi, I searched the forum for similar questions and found others had more complex situations than mine.

 

I recently changed employers and opted into a Traditional IRA. I originally contributed 100% of savings to a Roth IRA with the old employer. I followed the financial institution's process to disburse the funds and moved them into the new Traditional account immediately upon receipt of the distribution check. All Roth funds were put into a Traditional account.

 

Here is how I reported the situation in TurboTax:

  1. Provided the 1099-R that was provided by the original financial institution. The document indicated that $0.00 was taxable.
  2. I then used TurboTax's template for explaining recharacterized funds, and included the amount that was put into the Roth during 2020 with the old employer but then moved into the Traditional IRA with the new employer.

That is it. 

The distribution is labeled as income, so I wanted to make sure that these funds were properly being accounted for since it really was not retained cash. My understanding is that since the 1099-R indicated that the money was not taxable, that is enough to help tell the story that the money was properly put back into an IRA.

 

Is my approach and understanding correct?

 

Thank you.

5 Replies
macuser_22
Level 15

Properly report simple transition from Roth to traditional

First of all - employer plans are NOT IRA's.    IRA's are personal accounts held in a bank or financial institution.   Employers have Traditional 401(k) plans or 401(k) Roth plans.   

 

A Traditional 401(k) plan and be converted to a 401(k) Roth but only as an "in plan" conversion with one employer.   That would be taxable.    A 401(k) Roth can never be rolled into a Traditional 401(k) plans because you cannot convert after-tax (Roth) money to before-tax Traditional  money.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Yc6vo4c12Mmz
Level 1

Properly report simple transition from Roth to traditional

Just to make sure I understand what you’re saying, I effectively distributed my Roth 401k early as income and made a voluntary contribution to a Traditional 401k using that income. The old Roth money will be taxed when it leaves the traditional 401k later.

 

Is this accurate?

 

Thank you for helping me understand!



macuser_22
Level 15

Properly report simple transition from Roth to traditional


@Yc6vo4c12Mmz wrote:

Just to make sure I understand what you’re saying, I effectively distributed my Roth 401k early as income and made a voluntary contribution to a Traditional 401k using that income. The old Roth money will be taxed when it leaves the traditional 401k later.

 

Is this accurate?

 

Thank you for helping me understand!




No.  That is not permitted by law.    Roth money has already been taxed  so it can never be placed into a before tax retirement plan such as a Traditional 401(k), but 401(k) contributions can only be done by your employer and are reported on your W-2 in box 12.    You seem to be confusing a 401(k) and a IRA.

 

If an IRA That would not be a permissible rollover, but a new contribution, subject to the IRA contribution limits that can only come from "taxable compensation" (money you worked for - W-2 wages or net self-employed income usually) and cannot exceed $6,000 ($7,000 if over age 50) for all IRA contributions).

 

Any IRA contribution that does not meet those rules is an excess contribution subject to penalties that repeat each year until removed.    No IRA account trustee should have permitted an excess contribution in the first place.   

 

I am still not clear as to what types of accounts are actually  involved here.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Yc6vo4c12Mmz
Level 1

Properly report simple transition from Roth to traditional

You are right that I was confusing them. In my mind I was using 401k and IRA interchangeably. So thank you for educating me on the difference. In fact, my old statements clearly indicate "Roth 401k."

 

I filed paperwork through the old employer's 401k servicer (Vanguard) to move the funds into my new account with a new employer (through Voya). Voya produced a receipt that is titled "Confirmation of Rollover Contribution" that indicates how much money was transferred and which funds it went to. All the funds are accounted for in there.

 

Is this enough information to revisit the proper filing procedure question? Are there more details that I need to investigate first? Thanks!

macuser_22
Level 15

Properly report simple transition from Roth to traditional


@Yc6vo4c12Mmz wrote:

You are right that I was confusing them. In my mind I was using 401k and IRA interchangeably. So thank you for educating me on the difference. In fact, my old statements clearly indicate "Roth 401k."

 

I filed paperwork through the old employer's 401k servicer (Vanguard) to move the funds into my new account with a new employer (through Voya). Voya produced a receipt that is titled "Confirmation of Rollover Contribution" that indicates how much money was transferred and which funds it went to. All the funds are accounted for in there.

 

Is this enough information to revisit the proper filing procedure question? Are there more details that I need to investigate first? Thanks!


A rollover has nothing to do with a contribution.    The rollover is reported to you on a 1099-R form that you enter into TurboTax.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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