Reporting the ROTH IRA Conversion on your Tax Return

44 thoughts on “Reporting the ROTH IRA Conversion on your Tax Return”

1. Hi Robert,
   Sorry, but at this time of year, that’s a question that I would charge for. I recommend seeing a tax professional.

2. Do you file form 5329?

   I had three distributions from a traditional IRA with no after tax contributions and I am under 59 1/2.

   1) $10,000 not rolled over or converted
   2) $5,000 direct conversion to a ROTH
   3) $4,000 indirect 60-day roll over to a new traditional IRA

   I’m expecting to pay ordinary tax on $15,000 (excludes the $4,000 rolled over)
   And expecting to pay 10% additional tax penalty on only $10,000 (excludes the rollover and the Roth conversion)

   I will fill out 8606 for $5,000 and enter $19,000 on 1040 line 15a and $15,000 on 15b (and write rollover $4,000/convert to Roth $5,000 on the dotted line).

   My 1099-R does show $14,000 with reason code 1 (in box 7) and $5,000 with reason code 2.

   My question is how do I correctly report that 1040 line 59 is less than 10% of line 15b (line 15b being $15,000 but line 59 will only be $1,000 not the $1,500 which would be 10% of line 15). I originally thought I would be filling out part 1 of form 5329 with $15,000 on line 1 and $5,000 on line 2 to result in line 3 showing $10,000 subject to additional tax, but none of the exceptions codes for line 2 have anything to do with ROTH conversions.

   So;

   Do I fill out 5329 and use 12 as the reason code (12=other, but the description under other also has nothing to do with conversions)?

   Do I fill out 5329 and put only $10,000 on line 1 instead of $15,000?

   Or, do I not file form 5329 and write “NO” on the dotted line and just enter $1,000 on 1040 line 59 even though $1,000 is less than 10% of 1040 line 15b. (If this is the case it is unsettling that there is nowhere to explicitly report the difference between the $1,500 and $1,000 – I know it is implied with the inclusion of form 8606 and the distribution reason code 2 on the 1099-R, but this is the federal tax return in which everything is usually tediously documented – and this is what has lead to my confusion and concern).

   Thank you for your reply.

3. Hi Jason,
   The IRS actually prefers that you leave pennies off of your tax return. So I’d just forget about the 14 cents. So my question to you is — do you have any regular IRA money? That will determine how much of your conversion is taxable. If you have no regular IRA money – then 15a would be the distribution and 15b would the 0. But if you already had deductible IRA funds, then a portion of the conversion would still be taxable, even though you had $5500 in non deductible funds.

4. Hi, I can’t make a Roth contribution this year because of income. So I put 5500 in non deductible ira, and converted it to a Roth , at which time it gained 14 cents in interest. I know I have to do a 8606 and 1040, my first question is does the 14 cents get reported since it rounds down. Second how do I report it on my 1040, I think on line 15 a ira distributions would show what number and 15b would show what number. Do I need to report it anywhere else as well. Does the 14 cents get represent on 8606 or can I keep it at 5500

5. HELP !!!
   I am already in retirment age.
   For 2014 I converted $10,000 from traditional to roth IRA, in addition to the $10,000 they also took from my traditional ira taxes out (about $2,000). Total coming out of Traditional $12,000
   Which amounts goes on form 8606 part 2, the entire amount showing on 1099-R lines 1 and 2 $12,000 amount including taxes or the amount that actually went into roth $10,000?
   Another question: When you make a normal contribuion to roth, do you need to complete this form?
   I really will appreciate your help. Elena

6. Hi Ash,
   Yes, you’re right. And you don’t fill out part 1.

7. Hi Jan,

   Me and my spouse are not eligible to make a direct contribution to ROTH IRA this year as our AGI is more than permissible limit.
   We decided to contribute to traditional IRA and convert it into ROTH IRA immediately within few days.
   How do we declare this on 1040 and 8606 form?
   This is the first time we would be making any contribution to IRA and we both are not covered by any retirement plan by our employer

   Assuming our total wages is $x and each of us contribute $5000 to IRA and convert it immediately to ROTH with $0 earnings on it.

   1. Form 1040: line 7 $x
   1. Form 1040: Should we declare $10000 as deductible IRA on line 32 (As we are first making a contribution to IRA)
   2. form 1040: Line 36 $10000
   3. Form 8606 part 2, for conversion for each of us. Each form would like below ?
   line 16: $5000
   line 17: $0
   line 18: $5000 (which would mean we need to declare this on form 1040 line 15b)
   4. Form 1040: Line 15b $10000 for both of us. (Because of Line 18 on Form 8606)
   5. Form 1040: Line 22 $10000 + x
   6. Form 1040: Line 37 would be $x (as $10000 is cancelled by line 36)

   Is that correct ? Do we need to fill part1 also ?

   Your help would be greatly appreciated.

   Thanks,
   Ash

8. Hi Marlene,
   I’m dizzy! Let me make sure I’ve got it right–
   1. You rolled over your 401(k) into a traditional IRA. Right?
   2. Next, you converted the tradtitional IRA into a ROTH. Right?
   3. And finally, you recharacterized the ROTH back into a traditional IRA. Am I good here?

   So–the rollover of the 401(k) to the traditional IRA would not be taxable. You should have gotten a 1099R statement with 0 taxable transaction.

   Converting the traditional IRA to the ROTH–now that would be taxable. But–you recharacterized it, so it won’t be.

   So where do you report all this? You’re probably thinking it should go on form 8606–which is where all these types of things get reported. But what you did–you basically just zeroed everything out.

   So, how’s it all going to look? Well, on line 15a of your 1040, it’s going to say 3800. That’s the IRA distributions box. Box 15b–the taxable part will say 0.

   You’re going to attach a statement to the return that says, “3800 was rolled over from a 401(k) to a traditional IRA on XX/XX/2012 (date). 3800 was later converted to a ROTH IRA on xx/xx/2012. Subsequently funds we recharacterized to a traditional IRA on xx/xx/2013.”

   You can efile a statement like that.

   Even though you did the recharacterization in 2013, that’s okay, you just needed to do it before April 15th of this year. You will get a 1099R statement for that distribution next year. You just need to remember that when filing next years taxes–you accounted for that with your 2012 return.

9. Hi Cindy,
   I’m not liking the timing of your transactions. But I guess it doesn’t really matter. The thing is when you rolled over your 401K into an IRA that increased your basis in IRAs–so suddenly it made a portion of the non-taxable IRA that you converted into a ROTH taxable.
   Since you rolled over the whole thing–it’s really not going to make a difference.
   Bottom line–everything that was rolled over from the 401k is taxable.
   You’re going to be doing your work in the 8606. Basically, you should wind up with 2 pages of the 8606. On your 1040, you should see the entire amount of the 401k in the taxable section of the IRA.

10. Hi Jan,
    I rolled over my 403b account in 2010 into a Roth IRA and neglected to double check with my tax preparer about that. So it was never reported in a form 8606. How can I amend my taxes for the last two years? Or can I report the entire amount this year (now that I’m doing taxes on my own through Turbo Tax)? Thanks so much for your help!!

11. I rolled over a 3500.00 401K to a Trad IRA in 2012 and then rolled it into a Roth IRA. in 2012. Jan 2013 I called the Vanguard trustee and moved it back to a Trad IRA which is a recharacterization. I have called the IRS 3 times and each time I get a different answer. I can’t get much information trying to file online. I have been told I have to file a 8606 but I can’t understand how to do this. Every time I enter the roll over for the first 1099 and the other 1099 it doubles the amount. I am so confused. i need to know how to do a recharacterization. Also the IRS told me I would have to write a letter telling the IRS what I did. There was no amount change except a .70 change from the Roth back to a Trad IRA. Please help me.

12. Hi – Thank you for this great post. I have a question that I’m hoping you can help with. My husband made a post-tax contribution in 2012: $5K for 2011 Traditional IRA, and $5K for 2012 Traditional IRA. We immediately rolled that over into a Roth IRA. We then also rolled over his 401K from his company plan into the same Traditional IRA, and rolled that into a Roth IRA. I believe the 401K –> Trad IRA was pre-tax.

    I’m really confused how to file this using our tax software. The tax software I’m using doesn’t seem to differentiate between pre-and-post taxt contributions.

    I’m assuming there is no tax liability for the $10 K (2011 and 2012 Post-Tax IRA contributions) but that we have some tax liability for the 401K–>Traditional IRA –> ROTH IRA roll-over. Do we have to pay on the total roll-over amount or is it just the contribution amount or just the interest earned?

    Thanks for your help!

13. Hi James,
    you already paid the tax on that money, you should not be taxed on it again.

14. I contributed money to Roth in 2011. I had to recharterize due to income limits to tradional IRA. I then converted the tradional IRA to Roth in 2012.

    My question is this. I don’t seem to have a form 8606 from 2011. Do I need this for 2012 taxes so I can show basis of the amount that I had originally converted from Roth to IRA? Or will I have to be taxed on full amount since it was not deductible?

15. Hi Daniel,
    I see the problem. Okay, if you’re looking at the form 8606: here’s a link: http://www.irs.gov/pub/irs-pdf/f8606.pdf
    go to part II, it’s on page 2.

    On line 16, you’ll list the $5000 plus interest that you’ve got in the account. On line 17, the basis–you put zero. Basis here means money that you put into the account that you already paid taxes on. (Unlike “basis” in a stock fund where you list what you paid for it. That’s why you’re confused. The problem is, you’re intelligent. Being smart is usually an asset but not when dealing with taxes.)

    So, line 16, minus line 17 will give you the amount that will be taxed on line 18. Which will be the full amount of what’s in your IRA. (Which you knew, your gut was correct.)

16. Hi

    This was helpful. But also confusing. I made just one simple IRA contribution in 2009, it was tax deductible. Now I would like to convert the entire amount plus proceeds to roth IRA in 2012. I looked at the form 8606. But in Part II of 8606 it seems the “taxable amount” is just my current value minus my 5K basis (or current profits) on line 18.

    Don’t I now have to pay tax on the original 5K as well, since I am converting to Roth IRA? If so, in what year. Do I need to go back and refile 2009 and pay interests?

17. Hi Robert,
    Good questions. I’m going to answer them backwards because question number 2 is easier. When you take money out of a savings account to put into a ROTH IRA there is no tax consequence whatsoever. You were right, it’s your money, you’ve already been taxed–it does nothing to your AGI and has no effect on your taxes. I think all the talk about “conversions” can make the plain stuff confusing. But the bottom line there is that it’s perfectly fine taking money from savings and opening an IRS.

    Question number 1 was a little trickier–How much can you put in? (Sounds like it should be easy, but there’s always a catch, right?) You can deposit up to $5,000 to open up your account. If you’re over 60, you can deposit up to $6,000. But there are some other rules you need to know. For example, you can’t deposit less than the amount of money you earned–a kid who only made around $1500 at her summer job would only be able to contribute $1500 to an IRA because she didn’t make enough.

    And there are income limitations on the other end as well. If you’re married, your limitation is $179,000. If you’re single, it’s $122,000. If you’re married and filing separately, the limit is $10,000. (People who are married filing separate get no tax breaks.) If you make more than that, you won’t be able to make a straight ROTH IRA contribution.

    All of the rules are in IRS publication 590, a truly gripping piece of literature to be sure. But putting the sarcasm aside, it’s got all the rules about IRAs. If you want to check it out, the information about ROTH IRAs is on page 55. Here’s the link: http://www.irs.gov/pub/irs-pdf/p590.pdf

18. Hi, thank you for the explanation on Roth IRA. I was in the process of opening an account but I have 2 questions I hope you can answer for me.

    1) Is there a limit to the initial contribution you make to a ROTH IRA account. I am planning to make the initial contribution with money from my savings account.

    2) The money in my savings account is money I have been saving from my work income for the past few years. This saved money obviously has already been taxed over the years as income. However, if I decide to move it into a ROTH IRA from the savings account, will this increase my AGI, effectively double taxing me on that money? Any answers are appreciated.

19. Hi Frank,
    If you took money out of a Roth IRA–it’s not taxable and an 8606 isn’t going to be the form you need. So the question is: what does the IRS really want? The answer’s going to be in the letter. It could simply be that something needed to be reported that wasn’t, or maybe something was put on the wrong line.
    You can try calling the phone number they gave you on the letter. Many of the IRS people are really nice and very helpful and they can help you solve the mystery. If you don’t get lucky there, you can always email me a copy and I can take a look. I just don’t have enough information right now to help you. Sorry.

20. Hi Jan,
    I have a question. On the yr of 2006, I put on Roth IRA $5k cash and year 2008 I put on another $5k cash. Yr 2010, the money lost $500, so I withdraw out $9500. I did not report to the IRS because the lost.

    I got a letter fro the IRS … How do I fill form 8606? which part (1, 2 or 3) do I have to fill and how do I fill it.
    thanks
    frank

21. Hey Martin,
    I think you received a 1099R and it shows the payout from the pension plan right? In box 7 does it have a 2? That would be an early distribution with an exception? If that’s the case, then the $12,000 will show up as taxable on the front of your 1040 and there will be no penatly on the back. That’s all good, no additional paperwork necessary.

22. Hi – my company eliminated its modest pension program this year and I was compelled to move the $12,000 in pre-tax dollars someplace else. I moved from the company brokerage into an existing Roth IRA I have set up at another brokerage. I realize that the tax needs to be paid on that $12,000 but I’m not sure where on my return to show it, as Form 8606 appears to relate only to IRA’s. Do I just insert the word “pension” everywhere I read IRA and follow the directions that way?

23. Thanks Dave.

24. THis is just a thank-you for highlighting the basic cases in clear language. I have to say that the IRS really made a mess of these instructions in the 1040 packet: rather than say what to do with a simple case (your first scenario) they launched into a set of “exceptions” . I never did find specific instructions for line 15a (1040). I usually good with arcane language and logic, but even I was defeated by the IRS this time. Thanks for clarifying.

25. Hi Tim,
    You just felt like stumping me right? Okay, you win. No–I take that back. Here’s what you do, because for her to have paid half in 2010 that means there’s a mistake on the 2010 return. What you need to do is amend the 2010 tax return so that it’s right. You will apply the 2010 refund that she’ll get now to her 2011 tax return–that will pay for the 2011 extra tax she’ll owe on the conversion. Do the 2011 return correctly and it should all be good. Next year, you’ll do the 2012 with the second half of the Roth conversion.
    Does that make sense?

26. Hello there,

    I am tryingno help my Mom do her taxes, and we are struggling with lines 20a and 20b ( go figure:) she elected to split the difference in 2010 but paid half then instead of over 2011 and 2012. She now has to pay the second half this year correct? But where and how does she report the second half to be paid this year?

    Thanks so much for your help.

27. Hey BW–
    So my question for you is–how come you didn’t get a letter from the IRS for not paying tax on that $11,761? That’s why you would have done the 8606 to keep from having to pay tax on that $11,761.
    But–assuming that you really do owe it–it’s probably best to just amend your 2010 tax return–showing the Roth conversion on the 8606. Then prepare your 2011, paying tax on half of the amount and then you’ll pay the rest next year.
    Now just because I’m a little surprised that the IRS didn’t send you a letter–you might want to check with your tax preparer about it. Maybe what you took out had a “non-taxable” portion to it? Just thought I’d ask–what I don’t want you to do is pay tax for something that you might not be owing money on. (I’m guessing you’re right and you really do owe–but there’s that little nagging part of my brain that if I were doing your taxes–I’d be double checking that.)

28. I converted 11,761.93 in 2010 to a Roth from traditional retirement. No taxes withheld. I paid taxes last year on the other 21,917 that I took in cash from that retirement account, but have not paid any on the roth conversion. My tax preparer did not do a 8606. The total of the money was put on 16a, but only the 21,917 was put on the 16b, since I was not paying taxes on the conversion portion then. Was this wrong or what needs to be done to fix this so I can pay taxes on what I converted?

29. Hi Peter,
    Why didn’t you call H&R Block? When you use their software they’re supposed to answer your questions for you. Why didn’t you use my 1040.com software on my website?
    But I’ll answer your question anyway. It sounds like when you input your Roth distribution into the 1099R screen, that you forgot to enter the distribution code from box 7. I’d think that your code would be Q for a qualifed distribution from a Roth IRA. Try that and see if that doesn’t put your taxes right. (And next year prepare your taxes on my website.)

30. Hi,
    I am doing my taxes on H&R Block home software. We are retired. We took roth ira funds out of my wife’s ING Roth IRA Annuity. She is 62. When I entered the information, it kicked my tax payment up to 1400 or so. When I removed it, my payment is $99.00. As I paid taxes on the funds when I placed them into the Roth IRA, why is this problem happening? Note, 2010, we had some roth funds withdrawn and did not have this problem. I look forward to any help you can give. Thank you.
    Peter

31. Hi John,
    I think I know what the confusion is–I’m talking about form 8606 when I’m talking about most of the line numbers. The IRS agent is talking about the form 1040.
    Okay, but let me be a little snobby here–The Roth conversion goes on line 15 of the 1040–15a is the total amount of IRA money distributed and line 15b is the taxable amount. Line 16 (a and b) is for pensions and annuities.
    But it is confusing. It’s not you. But the 1/2 of the ROTH conversion should be reported on line 15B–the taxable amount.

32. Hi Bill,
    My question for you is–since you paid the taxes in 2010–but you didn’t convert until 2011–what happened to the taxes you paid in 2010? Did you get a refund? Or did you have them applied to your 2011 taxes?
    If they were refunded–well then you use that money to pay the taxes for 2011. If you had it applied to 2011–then the money’s already in your IRS account waiting to be applied to 2011.
    Does that make any sense?

33. The irs employee at my local irs office told me to report 1/2 of my 2010 Roth conversion on line 15A . That makes more sense to me, line 15b is for reporting pensions and annuities. I’m confused please enlighten .

34. I rollover 401k to roth ira. I paid the taxes for the rollover in 2010. I did not file a 8606.
    I did not convert until 2011. how do I correct this.

    Thank you

35. Hi Gene,
    It sounds to me like you made “non-deductible” contributions to your traditional IRA. So since you didn’t receive any tax benefit for making the contributions, you’ll be able to convert the amounts without paying any tax on it because you have basis in them.
    Now here’s the caveat–if you have other funds in a traditional IRA, you don’t just get to withdraw the money that would be tax free–you’d have to do a formula to figure out how much is taxable and how much isn’t. But if this is your only IRA money–what you just put int–then you’re all set. It’s too late to do the conversion for 2011, but you can convert your 2011 and your 2012 funds now and report it on your 2012 tax return next year.

36. I am confused about the taxes from a conversion from a traditional IRA to a Roth IRA. I just opened a traditional IRA about 1 month ago and started to participate in my employers 401K around the same time. I do not qualify for a Roth. This is the first time I have had an IRA of any kind and participated in a 401K. Jointly file with my spouse and combined AGI does not qualify me for a tax deduction on the traditional IRA contributions. I put in the max for 2012 and max catch up for 2011 at the same time. Question is: will the conversion for both the 2011 and 2012 contributions be taxed? I assume any profits before the conversion would be.

    thanks!

37. Hi Venky,
    The problem is–a conversion must be done before December 31–so your brokerage company can’t report the conversion for your 2011 taxes, it must go on your 2012 taxes.
    You can make a contribution up to April 15th–but conversions go in the year they are made. So your broker is saying that you made the contribution for 2012 and the conversion for 2012–that’s probably the best thing for you since you can’t claim the conversion now. Sorry.

38. Hi Jan, Need help with this question.

    For 2011 tax year, I contributed in Feb 2012 for traditional IRA and immediately converted to ROTH IRA the next day. My brokerage says, they will send 1099-R only in year 2013 as I did the contribution + conversion during 2012 even though it was for tax calendar year of 2011.

    My Q: Do I report to IRS my roth conversion when I file my 2011 taxes or 2012 taxes?

39. Larry–you’re confused because you’re right!

    The $5,000 was a taxable distribution–it wasn’t basis.

    It’s almost like you really had 2 completely different transactions.
    First–you did a $15,000 ROTH IRA conversion. Second, you did a $5,000 IRA distribution.

    So technically–your ROTH conversion was $15,000, but on the front of your 1040 return, in the taxable retirement funds section, it will read $20,000.

    So line 16 will be 15,000. Line 17 will be zero. Line 18 will be $15,000.

    You definitely want line 16B of your 1040 to say $20,000.

    Knowing what should go where is half the battle, the hard part is where in your software to input everything–but hopefully now you know where the numbers should end up.

40. Thanks Jan – your answer is way closer than anyone else (in fact I haven’t found anyone else adressing this so far). But what you say (situation 2) doesn’t sit quite right, and so I still have some question. Specifically, let’s say that the Form 5498 reflects a conversion amount from tradition to Roth of $15,000 but the 1099-R reflects a distribution amount of $20,000, the $5,000 difference being due completely to federal and state tax withheld from the traditional IRA to be used to pay taxes on the conversion.

    I’m frankly very confused by Form 8606; and even a bit by your answer. What has to be reported on the 1040 would have to be the distribution amount of $20,000. If I put $20,000 on line 16 of the Form 8606 (this is the form I’m going to be referring to henceforth), and a basis of $5,000 on line 17, that would suggest that the amount to be transferred to the 1040 line 15b would be only $15,000 which is not the taxable distribution amount reportable. (It would also show up as on $15,000 of the Part II line 18 of the Form 8606). That just doesn’t seem like it could possibly be correct. I really don’t understand how to handle this on the 8606 and where the total distribution amount is supposed to be posted on the 8606 that should be transferred to line 15b of the 1040. Could you explain this further please. I’m going nuts. I can’t imagine that only $15,000 conversion is reflected in Part 2 of the Form 8606 and the $5,000 difference is reflected somewhere else. And I can’t imagine that the amount transferring to the 1040 is only the $15,000.

41. John, Thanks! I guess those eggs in the picture above are for my face! You’re absolutely right. $5,000 is 8.33% of $60,000, not 12%. I’ve edited the post to reflect that. Thanks for pointing that out.

42. Hi Jan….you state “Our third scenario is a little trickier. You’re still rolling over $15,000 and your basis is $5,000—the difference this time is that you have a total of $60,000 total in your IRA. Unlike the above example, you can’t just deduct the $5,000 of basis from what you rollover, it has to be proportional to your total IRA amount. 5000/60,000 EQUALS 12%. Twelve percent of 5000 is $600. You’ll put $15,000 on line 16 for the rollover, $600 on line 17 for the basis. That means that the taxable amount on line 18 will be $14,400. (I know, it doesn’t sound as good as the other scenarios does it?) Don’t forget that you still have $4,400 in basis to use if you do any conversions in the future.”

    SORRY, Jan, but 5,000/60,000 is NOT 12%! It’s 1/12, or 8 1/3 %, which means your $600 should be $416.67; your $14,400 should be $14,583.33; and your $4,400 should be $4,583.33.

43. Hi Tina,
    Thanks for your question. You might have to correct me if I misunderstood you though. If I’ve completely misunderstood your question, let me know and I’ll try to give you a better answer. I interpreted it as, “what if my IRA is a 401(k) rollover?”

    If your IRA was from a rollover 401(k) then your contributions were not taxed and the rollover would be fully taxable. In this case you’d put $20,000 on line 16 and line 17 would be blank. On line 18 you’d have $20,000 of a taxable rollover.

    Contributions to the 401(k) are not taxed and the earning they make inside the 401(k) are not taxed when they are earned. Both the contributions and the earnings are taxed when they are withdrawn.

    If you had a combination of a rolled over 401(k) and non-deductible IRA contributions to roll over–then you’d pay tax on part of the rollover. For example: let’s say that of the $100,000 in your IRA, $5,000 was a non-deductible contribution. (The rest could be that 401(k) rollover.) That would make 5% of your total IRA be “non-deductible.” When you convert the $20,000, then 5% of the $20,000 would not be taxable so you’d have $19,000 of the conversion be taxable and $1,000 of the conversion not be taxable. So in this case you’d have $20,000 on line 16, $1,000 on line 17 and $19,000 taxable rollover on line 18.

44. Does it make a difference if you converted a portion of a nondeductible IRA (the rollover IRA was from a 401K of a previous employer)? I read somewhere that the contributions are not taxed, only the earnings. To make the math simpler, if I had a $100K IRA and converted only $20K, how would I fill out form 8606 and how would I determined the taxable portion?

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