Tax on IRA - Roth Conversion - SOLVED

[gguerrero61]

SOLVED - DISREGARD POST

Last year, my wife did a backdoor conversion from her traditional IRA to her Roth. She deducted 10% from her distribution amount for federal taxes. Schwab sent 2 separate 1099-Rs: (1) for the federal tax that was deducted from the proceeds, with boxes 1 (Gross distribution) and 4 (Federal income tax withheld) being the same amounts, and (2) for the net amount with zero in box 4. I entered all details accordingly but TT shows we have to pay 10% on the federal tax amount withheld. She turned 60 in December 2025.

Why would we have to pay a 10% penalty or tax on the federal tax withheld and if this needs correcting, where in TT can I do so?

[MindyB]

It sounds like the 1099-R may have been coded 1 in Box 7- Early distribution, no known exceptions.  If that is correct, the 10% penalty applies.  If it is not correct, and the conversion occurred AFTER she turned 59.5 in June, you should ask for a corrected 1099-R, with Code 7 in Box 7. If they refuse, adjust it yourself, then after entering the 1099-R check the box next to I need to file a substitute 1099-R and complete the interview questions. When you change from code 1 to 7, you'll also get  a question to check if you did withdraw the money early.