Conversion from traditional to Roth IRA in PA

[taxes2020s]

How to answer PA Distribution type for a Roth Conversion 1099-R:  Box 7 is 2, the “IRA/SEP/SIMPLE” box is checked, and all the other boxes are blank.  All of the money from my traditional IRA transferred directly into my Roth.  I am under 59.5 years old.  From my search of the PA Dept of Revenue, it indicates that converting from a traditional IRA to Roth IRA should usually be non taxable however turbotax codes it as taxable.

[ThomasM125]

You need to indicate that your pension distribution was rolled over when going through your PA return as follows:

[taxes2020s]

Thanks. I reviewed additional PA Dept of Revenue docs and one part says that if under 59.5 have to report it on cost recovery basis.

IMPORTANT: If you retired, but did not reach age 591/2, you must

report your distributions on a cost recovery basis until you reach age 591/2.

So, the question is, if I mark it as distribution code for rollover, none of the distribution is taxable. If I choose the code 'traditional or roth IRA: under age 59.5', which is what turbotax marks it as, I have to go through the process for the cost recovery basis.

Based on the above, what would be the proper coding?

Thanks again

[ReneeM7122]

Regarding the proper coding, here is a TurboTax article with steps to enter a backdoor Roth conversion.

[mmagdits1]

This answer is not helpful, it is an article regarding federal taxes.  I went through those steps in the fedral section and it does work.  The original question is regarding Pennsylvania State taxes, I have the same exact question.  How to code distribution type for a traditional IRA to Roth IRA.  In my situation it also includes backdoor rollover for 2023 and I am under 59 1/2.  Anyone have any suggestions.

[mmagdits1]

It looks like the answer is "rollover" see text underlined below.

This is from the Pennsylvania Department of Revenue website:

Taxability of Roth IRAs according to PA income tax rules

Answer ID 274   |    Published 12/03/2002 12:15 AM   |    Updated 11/14/2022 05:01 AM

Explain the taxability of Roth IRAs according to PA income tax rules.

Most of the personal income tax rules that apply to individual retirement accounts, annuities, or simplified employee pensions also apply to Roth IRAs. For example--
An exclusion is allowed for payments made by employers directly to Roth IRA trustees or issuers for the benefit of employees.
No exclusion or deduction is allowed for contributions to a Roth IRA made by, on behalf of, or attributable to, an employee or self-employed person, directly or indirectly, whether through payroll deduction, a salary reduction agreement or otherwise.
Income on assets held in a Roth IRA is not taxable.
Distributions are includable in income to the extent that contributions were not previously included if made before the individual for whom the account is maintained obtains age 59 ½ or retires from service.
The cost recovery method is used to determine the portion of a distribution to be included in income.

Special rules, however, apply with respect to roll over contributions and plan conversions.

The conversion of a traditional IRA to a Roth IRA is generally not taxable.  That is, monies transferred from a traditional IRA to a Roth IRA via conversion (whether by a trustee-to-trustee transfer or a roll-over within 60 days) are generally not subject to Pennsylvania personal income tax.  However, any amounts transferred from the traditional IRA that are not put into the Roth IRA, be it by federal income tax withholding or otherwise, are subject to Pennsylvania personal income tax.  In such a situation, basis is allocated pro-rata between the taxable distribution and the non-taxable conversion.  If there is a partial rollover/conversion, the basis in the traditional IRA must be allocated pro-rata between the traditional IRA and the Roth IRA.

[AmyC]

Your underlined part is after the  part saying any distributions not previously included in income is taxable. If all of it is a backdoor Roth, previously taxed, then the rollover is just a rollover to PA.

The key issue with the state is really about those who haven't been PA residents the whole time. If your contributions were made while PA resident, then it has all been taxed and the rollover is just that. If you lived other places and did not pay taxes on the money, then it is taxable in PA.

@mmagdits1