Roth IRA Distributions - Pre 59 1/2

[IRAdistributions]

Hi,

I had previously converted my Traditional IRA to Roth IRA in 2023 (e.g. $80). In 2024, I took a distribution from my Roth IRA (e.g. $100). I inputted my 2023 conversion amount ($80) in the IRA worksheet under "2023 conversion contributions taxable at conversion". Given that the conversion has not been for five years yet, I was expecting to be taxed on the entire $100 plus 10% penalty. However, in the form 8606, it is automatically pulling in the $80 amount into line 24 as a basis in conversion resulting in a taxable income of only $20 (100-80=20) as opposed to the $100 I was expecting.

Can you please provide guidance on how I should be inputting the 2023 conversion amount into the IRA worksheet without it reducing the taxable income?

[fanfare · Accepted solution]

Since $20 is the correct result, you should not be searching for another way to report it with different results.

@IRAdistributions 

[IRAdistributions]

Hi @fanfare , thanks for the response! All set!

[dmertz]

The 5-year holding period for Roth conversions is only used to determine if there is an early-distribution penalty.  It is not involved in determining the amount that is subject to income tax.  $20 is the correct amount subject to income tax because you already paid the income tax on the $80 conversion.  $100 is the amount that is subject to early-distribution penalty because the holding period has not been completed.