Traditional IRA to Roth IRA Conversion: Is Form 8606 Being Completed Properly by TurboTax?

[p-123]

Under Federal Taxes - > Wages & Income - > Retirement Plans and Social Security

I chose to Update "IRA, 401(k), Pension Plan Withdrawals (1099-R)"

I then reviewed the information for my Traditional IRA to Roth IRA Conversion 1099-R that was imported from my vendor.

(the numbers below are just used for simplicity reasons and not the actual amounts)

Gross Distribution of $100,000

(x) Form 1099-R withdrawal of money from 401(k) retirement plans, pensions, IRAs, etc. {Continue}

Information was imported from vendor showing:

1 Gross Distribution: $100,000

2a Taxable Amount: $100,000

4 Federal Income Tax Withheld: $25,000

7 Normal Distribution shown

What did you do with the money?

(x) Moved the money to another retirement account

(x) Did a combination of rolling over, converting, or cashing out the money

(x) Tell us how much of the $100,000 was moved to another retirement account?

(x) Amount converted to a Roth IRA account $75,000 [$100,000 IRA amount - $25,000 taxes = $75,000]

After all of this here is the question:

Form 8606 only has two entries as follows:

Part II:

16: Otherwise enter the "net amount" you converted: $75,000

17: Enter your basis: $0.00

18: Subtract line 17 from line 16: Taxable amount $75,000

It is the "Taxable Amount" that is confusing as it is $100,000 (all the money withdrawn from the IRA should be taxable), and this is what is included on line 4B of the 1040-SR.

So in my opinion the 1040-SR line 4b is correct with the full taxable amount $100,000. So my bottom line tax amount is correct but why does the 8606 reflect $75,000 as the taxable amount in Part II: Line 18?

Let me know if you need further information. I have tried to be as detailed yet succinct as possible.

Cheers,

[AnnetteB6 · Accepted solution]

Form 8606 line 18 is correct in showing the taxable amount of $75,000 (from your example) because it is only considering the amount that was reported to be converted to the Roth IRA, which was $75,000.  Of that $75,000 that was converted, how much was taxable -- all of it, or $75,000.  

Since the remaining $25,000 was not actually converted to the Roth IRA, the Form 8606 does not consider it as part of the calculation.  It is only looking at the amount that was converted, not the amount that was distributed from the Traditional IRA.

[p-123]

Annettb6, an excellent response to my question. It explains the form and how it works and accounts for what, I thought, was a discrepancy.

I appreciate your support and efforts!

Cheers,

[lphill828]

I have an additional question.  Using p-123's example, Form 8606, Line 18 "Taxable amount" line does show the $75,000 amount on my form, but does not transfer this amount to my Form 1040-SR, line 4b (as Form 8606 indicates to do).  My line 4b amount shows the $100,000 amount as the Taxable Amount (like my Form 1099-R shows in box 2a) which is the amount transferred prior to the $25,000 I already paid in taxes.  Should I try to overwrite the line 4b amount to show $75,000?

Thank you so much in advance!! 

[KeshaH]

The amount on line 4b of your 1040-SR is correct. Since you didn't rollover the $25,000 in this example, it's considered taxable income. Based on this example you would have $100,000 of taxable income, and $75,000 in after tax funds in your Roth IRA account.

[lphill828]

Thank you very much, KeshaH!!  And I appreciate your quick response! 😊

[KelleyR]

Hello.  Piggybacking off of the other questions...

Answers to the previous questions have moved my efforts through the process.  Yea!

Here is my issue.  After putting in the information necessary and keeping with similar numbers:

My 1099-R  line 2b says Taxable amount not determined.

So the 1040 SR (I think that is the correct form designation) has the entire 100,000. listed as converted.  But, as the end of the section in the summary, my 100, 000 is listed as not taxable.

Any suggestions for making this amount taxable?

Thanks,  Kelley

[AnnetteB6]

To be sure we are on the same page, please let me know what amount is reported on your Form 1040 (or Form 1040SR) on lines 4a and 4b.  

Also, are you reporting a Traditional IRA to Roth IRA conversion?  Did your Traditional IRA have any non-deductible contributions?

@KelleyR 

[KelleyR]

Hi AnnetteB6:

Thank you for getting back to me.

To answer your clarifying questions.

Form 1040 SR, 4A and 4B 100,000 is the reported amount.  Yes I am reporting a Trad IRA to Roth IRA conversion.  My Trad IRA did not have any nondeductible contributions.

I can't figure out how to open form 8606. 😎 

I followed the steps listed by p-123 originally.  With a couple of exceptions.  On 1099-R, line 2B Taxable amount not determined is checked.  Line 4 Federal income tax withheld is blank on my 1099R.

Thanks in advance for your efforts.

KelleyR

[AnnetteB6]

If your Form 1040 line 4a and 4b are both showing $100,000 then the full amount of the Form 1099-R distribution is being included in your income.  So, regardless of the summary page in TurboTax saying the amount is not taxable, it is being taxed on your actual tax return.

Since the Traditional IRA that is being converted did not have any non-deductible contributions, then it is expected that the entire distribution would be taxable.  The only reason it would not be fully taxable would be if you had more than one Traditional IRA account and the other account(s) had non-deductible contributions.  The 'taxable amount not determined' check box indicates that the situation about whether you had any non-deductible contributions to consider was not known to the IRA custodian.  

Box 4 on your Form 1099-R indicates that no Federal taxes were withheld from the distribution to help cover the income tax.

@KelleyR