IRA conversion to Roth IRA

[skiingthebumps]

Financial Advisor recommended I move some money from my traditional IRA into a Roth IRA, as much as I could move without pushing myself into a higher tax bracket.  Now, turbo tax is telling me I am under penalty because I contributed over the allowable $7,000 for my age.  TT is telling me I will incur a 6% penalty until I correct this issue.  Am I missing something here?  Am I giving TT wrong info  or was it my Financial Advisor that put me in this mess?  Need some guidance

[macuser_22]

How did you move it?  Do you have a 1099-R?

[macuser_22 · Accepted solution]

A conversion is NOT a new contribution and does not get entered in the IRA contribution section at all.

[skiingthebumps]

Yes I have a 1099-R and the conversion from traditional IRA to Roth IRA took place in like, one day using the same financial institution

[macuser_22]

Just enter the 1099-R and say you "moved the money" and did a "combination of things" and enter the conversion amount in the lower box.     That will be a taxable distribution or partly taxable if you have a after-tax basis in the IRA.

[pathfinder1298]

It is my understanding the CARES Act not only suspended the Required Minimum Distribution From IRAs but also allowed tax payers over the age of 70 1/2 to use funds from a Traditional IRA to convert to a Roth IRA.

 I understand that I will have to pay taxes on said Traditional IRA but TT is indicating that I can't convert the funds because I did not receive wages equal to the transfer and the I would be penalized until I correct this issue.

Please advise!

[macuser_22]

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@pathfinder1298 wrote:

It is my understanding the CARES Act not only suspended the Required Minimum Distribution From IRAs but also allowed tax payers over the age of 70 1/2 to use funds from a Traditional IRA to convert to a Roth IRA.

 I understand that I will have to pay taxes on said Traditional IRA but TT is indicating that I can't convert the funds because I did not receive wages equal to the transfer and the I would be penalized until I correct this issue.

Please advise!

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The CARES Act is immaterial.   There has never been a age restriction for a *conversion*.   That  has nothing to do with a *contribution* - totally different things.

A conversion is simply taking a taxable Traditional distribution and having the trustee of the account move to to a Roth IRA.  That is subject to the normal Traditional IRA distribution  tax.

The SRCURE Act (not CARES Act) removed the age restriction for new Traditional IRA *contributions* that still must come from taxable compensation as defined by the IRS.  

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deductible part of the SE tax, but can include commissions, certain alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2020_publink1000230355

[mollymutt]

I converted $20,000 to a Roth.  I know that I owe taxes on the amount.  It was a 401K put into an IRA and then converted.  Turbo Tax is telling me that I don't owe taxes on that amount, even though I "moved the money" and "did a combination of things" and then entered the conversion amount in the lower box.  It is taxable, I know it.

[macuser_22]

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@mollymutt wrote:

I converted $20,000 to a Roth.  I know that I owe taxes on the amount.  It was a 401K put into an IRA and then converted.  Turbo Tax is telling me that I don't owe taxes on that amount, even though I "moved the money" and "did a combination of things" and then entered the conversion amount in the lower box.  It is taxable, I know it.

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If you did it that way then the taxable amount should be on the 1040 form line 4b.      What is on 4b?

[green apple]

I converted $55,000 from my rollover ira to a roth ira.  I did not withhold any taxes (typical 20%).   I received a 1099R for $55,000 with no taxes withheld.  Instead, I sent  $12,000 to IRS as federal taxes the same day of the conversion (12/31/20).

Question:  Do I report this payment as additional "Federal Estimated Taxes" which was not planned

or "Other Income Taxes" not withheld on a 1099R?   

[ThomasM125]

Either choice would work, but it is technically an estimated tax, so I would suggest that option.

[rkdiaz1]

I did a conversion from a tradition IRA to a Roth IRS but did not receive a 1099 only a 5498 form. I called the company to see if they are sending out a 1099 and they said no. How do I enter the conversion into turbo tax without the 1099.  It will only let me enter a contribution which then says I have an excess and have to pay a penalty.

[VolvoGirl]

You need to get the 1099R from the Traditional IRA.  You have to get it.   And you do not enter the conversion as a contribution to the ROTH.  Only enter it from the 1099R.  The 5498 is only for your records.

[AlbearK]

Many Investment Companies now have a click spot on their web site for IRA to ROTH IRA Conversions so I'm not the only individual doing a ROTH IRA Conversion prior to Federal Tax Code Reverting back in Tax Year 2025... so, guidance in the program concerning "Annualized Income Installment Method" will avoid or diminish a penalty payment. Also doing a “ROTH IRA Conversion” in last quarter of tax year will avoid estimated tax payments. TurboTax almost let me pay a penalty when my IRA to ROTH IRS Conversion was done in last quarter of Tax Year 2022 and no Tax Installment Payments needed to be made. I Googled the penalty and found out about the "Annualized Income Installment Method" IRS Form 2210.  
According to TurboTax Program, all info in Form 1040 had to be entered to go into "Other Tax Situations" and Form 2210 inputted to eliminate the penalty (if conversion is done in last quarter). If the IRS Form 2210 if filled out correctly shows when the conversion was made it will help decrease or eliminate the penalty.
TurboTax should recommend the necessary action to eliminate penalty in following Tax year by recommending last quarter year IRA Roth conversion.