Roth IRA Conversion

[eventwizard]

I converted $5K of my Traditional IRA to Roth in 2021. Received a 1099-R from financial company and no Federal Taxes were withheld. Having trouble answering the questions in TurboTax under retirement 1099-R. I answered that non was an RMD; none charity and am stuck on What did you do with the money. There are two questions on this page. Answering one way increases my Federal Tax Due and the other leaves it alone. I'm pretty sure that the conversion is a taxable event. Is that correct? Thanks for the help.

[MinhT1 · Accepted solution]

On the question What did you do with the money, you should answer that you rolled it over to a Roth IRA.

The rollover amount is taxable, unless your Traditional IRA has basis in which case only part of the amount is taxable. Entering this form 1099-R should increase your tax due.

[brilliantatbreakfast]

In 2021 I had a partial distribution from a traditional IRA which I rolled over into a Roth IRA, so the conversion is taxable. It is NOT a contribution, it is a conversion. The 1099-R form from the source IRA was coded "7" (Normal distribution) but the portion net of fees was deposited directly into my Roth via a direct transfer. There are NO questions about a Roth CONVERSION, only about a Roth CONTRIBUTION. I answered "no" to the question "Enter your total Roth contributions for 2021, even if you transferred, or "recharacterized" some or all of it to a traditional IRA." I did not make a contribution, I converted part of a traditional IRA to Roth and I'm paying the taxes on the distribution from the traditional IRA. So why is there no option for a traditional-to-Roth CONVERSION?

[dmertz]

Indicate that you moved the money to another retirement account that you did a combination of rolling over, converting and cashing out, then indicate the amount converted.

[brilliantatbreakfast]

I need exact steps in TurboTax Deluxe to follow because I am not given that option. I suspect it's because the 1099-R was coded as 7.

[AmyC]

Enter the Conversion from a Traditional IRA to a Roth IRA

1. Open your return
2. Go to income section
3. Delete your 1099-R
4. Re-enter and leave the taxable amount blank for now, enter the code 7
5. Answer None of these apply when you reach the screen Do any of these situations apply to you?
6. Answer from a traditional IRA, continue
7. Inherit no, continue
8. Select I moved the money to another retirement account, 
9. drop down appears, select I did a combination of rolling, converting or cashing out the money,
10. drop down, enter amount converted to ROTH
11. continue
12. HSA, no, continue
13. Continue answering questions until you come to the Your 1099-R Entries screen

Your return should be fine. You can go back and enter the taxable amount but do not continue through the screens again. Your tax liability will not change at this point.

@brilliantbreakfast

[billdickason]

I have taken the RMD distribution in 2021 from my traditional IRA.

The RMD amount is composed of QCDs, a Roth conversion, and cash.

When I input these to the 1099-R via the questions, it shows the form as NOT DONE.

Line B6 shows the Roth conversion amount in red, and an error states: Partial Roth conversion amount cannot be greater than the amount on lineB1, the amount that could potentially be converted to a Roth IRA.

In spite of the error symbol, the return checks correctly (can be filed) and the Form 8606 shows the proper amounts on lines 7 & 8.

Shouldn’t this be fixed?

[dmertz]

The error message should actually refer to line B4, not B1.

The amount on line B4 is the gross amount of the distribution minus the greater of what you indicated the RMD and the QCD to be.  (The amount on line B4 is also reduced by any amount rolled over as indicated on line B1 or B2, but TurboTax no longer support reporting a rollover and a Roth conversion together on a single 1099-R form, so there should be nothing on line B1 or B2).