Getting a jump planning on 2020 tax completion. Have read up on conversions in this forum. Want to convert (for discussion)$10K from IRA(all pre-tax) to Roth, same institution, and plan to have 21% of $10K withheld by institution for Fed tax, 4% for State.. So I filled out 1099R form on step-by-step showing $10K taxable disbursement, box 7ck and the $2100 amount of Fed tax and $400 for State. Form 8606 shows auto-completed amount line 16 $7500 and same for line 18. Then instruction says "include this amount on line 4b" of 1040. I assume the full $10K is really the included amount and fully taxable, and the $7500 becomes the basis in the Roth. Am I doing this correctly? I'm discussing this now to help decide on the amount I want to convert and what the tax liability will become.
Ok ... if you have the taxes withheld from the converted amount you will NOT convert all of it so only the portion that was not withheld would be converted. To convert the entire $10K you must NOT have the taxes withheld ... instead you should make estimated payments from other means.
@domerdoc wrote:
Am I doing this correctly? I'm discussing this now to help decide on the amount I want to convert and what the tax liability will become.
Yes, that is correct, bit the entire $10,000 is the 1040 line 4b taxable amount since the amount withheld for tax is also part of the distribution. The 8606 instructions say to *include* the line 18 amount on 1040 line 4b, that does not mean that that is the total line 4b amount.