Hello - My question is centered around the use of the word "Distribution". In 2023, I converted funds from a Traditional IRA to a Roth. My corresponding 1099-R Box 7 is marked as a Distribution Code 7, described as Normal Distribution. IRA/SEP/SIMPLE box is checked.
I understand the conversion triggers the taxation regardless of whether I convert it and leave it parked in the Roth or actually withdraw the funds. My question arises as I am seeing contraditions on several of my tax forms. In the context of the 5 Year Rule, I have not yet passed the criteria of owning the Roth for 5 years. I see no evidence on my forms that I am being penalized for taking a Distribution (even though the 1099-R says I took a Distribution). My 8606 Part II documents the transaction as a "Conversion" . 8606 Part III does not list any "Distributions". Therefore... Even though my 1099-R classifies the Conversion as a Distribution, Form 8606 lists the transaction only as a Conversion, with no actual Distribution (withdrawal).
Bottom line: Does the IRS know with certainty that I have not withdrawn the funds from the Roth? Perhaps I've answered my own question. Yet the contradictory language has me begging for confirmation. 🙂 Thank you for any assistance.
Yes, the funds leaving your Traditional IRA are a distribution. When they are properly converted to your Roth account, they are a conversion.
That makes the distribution taxable, but not subject to a penalty.
The five-year rule doesn't apply since you didn't take a distribution from your Roth.
The purpose of Form 8606 is to let the IRS know what occurred with this distribution, which is that it's a conversion.
Don't worry, the IRS will understand this.