Rollover and Roth conversion

[scorp66]

This year, I encountered a unique situation with my IRA accounts:

1. 2024 Contribution Delay: Typically, I make a non-deductible contribution to my Traditional IRA each year and then convert it to a Roth IRA (backdoor Roth) due to my high-income bracket. However, I forgot to make the 2024 contribution during the year and ended up making it in the first week of 2025 for the 2024 tax year.

   • At the time of this contribution, my Traditional IRA balance was $0.
   • I made the contribution, then converted the entire balance to my Roth IRA. After the conversion, the Traditional IRA balance returned to $0.

2. 401(k) Rollover to Traditional IRA: Recently, one of my previous employers closed their 401(k) plan and requested that I roll over the funds. The rollover option allowed me to transfer the funds to my Traditional IRA.

   • I provided my Traditional IRA account details, and the employer issued a check payable to my brokerage with the Traditional IRA account number.
   • If I deposit this rollover check into my Traditional IRA and then convert the entire balance to my Roth IRA, I understand I will need to withhold taxes on the converted amount. How should I handle the tax withholding in this case?

3. Future Contributions for 2025: At the end of 2025, I plan to make my 2025 non-deductible contribution to the same Traditional IRA, convert it to my Roth IRA, and ensure the Traditional IRA balance is again $0.

Since all of these transactions involve the same Traditional IRA account, will this cause any complications when filing taxes? Additionally, what forms will I need to submit for accurate reporting of these transactions?

[dmertz · Accepted solution]

1.  Since the check has not yet been deposited into your traditional IRA, this rollover will not affect the traditional IRA year-end balance that must be reported on your 2024 Form 8606.

2.  Tax withholding can be declined on any Roth conversion from your traditional IRA. You'll then want accommodate that additional tax liability either with tax withholding from other sources or make an estimated tax payment if necessary to avoid an underpayment penalty.  Otherwise you can have taxes withheld from the distribution from the traditional IRA and complete the conversion of that portion indirectly within 60 days.  If you are under age 59½ and do not roll over or convert the portion withheld from the traditional IRA distribution for taxes, you'll have an early-distribution penalty unless you have an exception that applies.

3.  Sounds reasonable.

If you are over age 59½ at the time or you have no taxes withheld, all of the traditional IRA distributions will be reported on a single Form 1099-R.  If everything is ultimately converted to Roth, you'll simply indicate that when you enter this Form 1099-R into TurboTax.  TurboTax will prepare Form 8606 Parts I and II to calculate the taxable amount by application of your basis in nondeductible traditional IRA contributions and your Roth conversions.