1099-R

[PLMcG]

Assume in 2014 that you made too much money to contribute to a Roth IRA but you had made automatic contributions to the Roth IRA account throughout the tax year.  At the end of the year, you recharacterize your Roth contributions to a Traditional IRA and do not take a deduction for the Traditional IRA.  Question 1:  Is this recharacterized money taxable (since it was initially funded with after-tax money into the Roth IRA)?

In 2020, you convert this Traditional IRA to a Roth IRA.  Question 2:  Is the tax burden (the taxable amount) the amount of money the IRA has increased from the time it was recharacterized to the time it was converted?  I received a 1099-R indicating the entire amount (from the time it was recharacterized to the time it was converted) is fully taxable.  Please provide advice.  Thank you.

PLMcG

[macuser_22 · Accepted solution]

#1 - No it is not taxable.

#2 - Yes the earnings converted will be taxable.   The taxable amount of the conversion depend on the ratio of all of your  non-deductible contributions (basis) and the year end value all existing Tradition IRA's.

The basis will be found on line 14 of the last filed 8606 or the 2014 8606 for the 2014 non-deductible contribution of no other non-deductible contributions. .

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

You will be asked of you had and tracked non-deductible contributions - say yes. The enter the amount from the last filed 8606 form line 14 if it did not transfer. Then enter the total value of any Traditional, SEP and SIMPLE IRA accounts that existed on December 31, 2020.

That will produce a new 8606 form with the taxable amount calculated on lines 6-15 and the remaining carry-forward basis on line 14.

NOTE: If there is an * next to line 15 then 6-15 will be blank and the calculations will be on the "Taxable IRA Distributions worksheet instead.

[PLMcG]

macuser_22

Thanks for the informative advice.  May I contact you if I have additional questions on this 1099-R issue?  Thanks again.

PLMcG