topic Re: IRA conversion vs. rollover - does it make a difference on taxes? in Get your taxes done using TurboTax

IRA conversion vs. rollover - does it make a difference on taxes?

Need2Know2 — Mon, 15 Mar 2021 14:50:51 GMT

Hello!

I am currently filling out the fields on Turbo Tax for it to track my cost basis for my Roth IRA. As I'm reading the information provided, however, I find that I'm a bit confused. I never knew there was a difference between the terms rollover and conversion. A few years ago, I converted a 401k from a previous employer to my Roth account. I can't remember well, but I think when I did my taxes, I counted it as a rollover rather than a conversion. I looked at my old tax form and it appears that I still paid taxes on the money, since it was going into a Roth and thus became taxable. But when I look at the 1099-R forms, it looks like perhaps I did count it as a rollover instead of a conversion. How do I tell if I did it correctly, and I guess more importantly, is this something that even matters? Does it make a difference on my taxes, or am I just letting myself be confused for no reason? 🙂

I'm also a bit confused by the difference between conversions and recharacterizations for non-Roth to Roth. As far as I can tell, it doesn't matter too much which one you choose; you end up paying either way. Again, I can't remember what I did, but I don't think I recharacterized anything.

Thank you for helping to clear up my tax illiteracy! 🙂

Re: IRA conversion vs. rollover - does it make a difference on taxes?

DanaB27 — Mon, 15 Mar 2021 15:12:16 GMT

Yes, when you moved the pre-tax money from the 401k to the Roth IRA (an after-tax account) then this was a conversion. It seems as if you entered it correctly since you paid taxes on the conversion.

A rollover is when you move money from per-tax account to another pre-tax account (for example 401k to traditional IRA) or from an after-tax to another after-tax account ( for example Roth 401k to a Roth IRA).

A recharacterization of a contribution allows you to treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA. For example, if you made a contribution to a Roth IRA but then change your mind before the due date then you can tell your bank that you want this to be a traditional IRA contribution instead of a Roth contribution.

Re: IRA conversion vs. rollover - does it make a difference on taxes?

Need2Know2 — Tue, 16 Mar 2021 15:03:18 GMT

Very helpful...I really appreciate your response! Thank you!