403b rollover to Roth IRA - Tax Preparation

[kannon]

Morning -

We rolled over a small portion of my DW's 403b to a Roth IRA.

We are awaiting a 1099-R form but I wanted to get a heads start on my TY15 taxes.

Since money went from a pre-tax 403b to a Roth IRA I understand that the entire amount of the rollover is taxable.

From a tax standpoint, was hoping anyone online who has done the same could provide some hints. Here is what I think I know what to do:

1) the entire rollover is added to the taxable Pension line 16a and 16b. In other words my overall taxable income will go up by the full amount of the rollover.

2) Do I need to complete Part 1 Form 8606 and part II. This is where I am confused cause this form talks IRAs and not 403/401. And the form says to put numbers on Line 15a and b.

Was hoping someone online here has already done this.

Thanks

kannon

 

[kaneohe]

Interesting question........wasn't sure so I asked. Sounds like you
just do line 16a, b on the 1040 and no F8606.
Fairmark Forum :: Retirement Savings and Benefits :: Conversion from 401K/403B to Roth IRA

You might want to make a note to yourself to document the Roth conversion so if you take an early distribution from the Roth , you'll have the info you need to
do your taxes......date, amount and the fact that it is a conversion.

 

[LOL!]

These conversions with virtually no reporting except throwing some numbers on Form 1040 probably all benefit from a statement added to your tax return.

The instructions for Form 8606 talk about these extra statements and how to word them. I would probably add such a statement to my return even if I didn't have to file Form 8606 for other reasons.

This is from the instructions to Form 8606, but may not apply here:

You do not file Form 8606. You attach a statement to Form 1040 explaining that (a) you made a rollover of $50,000 from a 401(k) plan to a Roth IRA on July 20, 2015, and ...

 

[kaneohe]

These conversions with virtually no reporting except throwing some numbers on Form 1040 probably all benefit from a statement added to your tax return.

The instructions for Form 8606 talk about these extra statements and how to word them. I would probably add such a statement to my return even if I didn't have to file Form 8606 for other reasons.

This is from the instructions to Form 8606, but may not apply here:

Great find,LOL! Where exactly did you find that in the instructions?
I couldn't find that. .......and I agree more info can't hurt.

 

[GreenER]

Thanks this was timely!

I was just contemplating this scenario over the weekend. I am planning to transfer a hunk from my 403b to Roth next year when I retire and was wondering how this was handled on taxes. Since we will be working only a partial year but will have already made enough to make us ineligible for ACA subsidy for 2017, I figured we may as well transfer as much as we can without exceeding the 15% bracket.

 

[Looking4Ward]

My situation is exactly the opposite - I converted some tIRA funds to a Roth IRA last year and now, after all of the capital gains distributions last month and finding out this morning just how much of my 2015 dividends were NOT qualified, I determined that the taxes I would owe would be crazy high and a very poor example of a Roth conversion.

So today I filled out Vanguards "Recharacterization Packet" to reverse those transactions.

Not looking forward to the mess this is probably going to cause on what would have previously been a very straight-forward tax return.

 

[sengsational]

To the OP, why don't you just follow the interview on some tax software? You'll get the 1099-R with the conversion amount and a "2" in the distribution type box, if memory serves.

 

[kaneohe]

My situation is exactly the opposite - I converted some tIRA funds to a Roth IRA last year and now, after all of the capital gains distributions last month and finding out this morning just how much of my 2015 dividends were NOT qualified, I determined that the taxes I would owe would be crazy high and a very poor example of a Roth conversion.

........................................................

I don't understand this..........if funds are in an IRA, any transactions within the IRA are disregarded for tax purposes. You would be taxed only on the amount of deductible funds in the conversion which presumably you knew.
What am I missing?

Sorry, I think I misinterpreted your post on first reading. I think you mean you got surprise dividend/CG distributions in your taxable account which along with your Roth conversion raised your income and produced crazy high taxes so you recharacterized the Roth conversion to reduce AGI.

 

[Looking4Ward]

I don't understand this..........if funds are in an IRA, any transactions within the IRA are disregarded for tax purposes. You would be taxed only on the amount of deductible funds in the conversion which presumably you knew.
What am I missing?

Sorry, I think I misinterpreted your post on first reading. I think you mean you got surprise dividend/CG distributions in your taxable account which along with your Roth conversion raised your income and produced crazy high taxes so you recharacterized the Roth conversion to reduce AGI.

Yes, the distributions were in my taxable accounts. Sorry I wasn't clear and sorry to the OP for inadvertently hijacking the thread

 

[kannon]

Well I finished taxes with Turbo Tax. The 1099-R includes the Roth IRA rollover with Code G. The software added the amount converted to Line 16b which added to our overall AGI.

Here's something interesting. Because it boosted our taxable income, we owe more federal tax, and because I did not have enough withheld, we got a penalty.

Is there a way to avoid a penalty when doing a Roth IRA rollover?


Thanks

Kannon

 

[kaneohe]

Well I finished taxes with Turbo Tax. The 1099-R includes the Roth IRA rollover with Code G. The software added the amount converted to Line 16b which added to our overall AGI.

Here's something interesting. Because it boosted our taxable income, we owe more federal tax, and because I did not have enough withheld, we got a penalty.

Is there a way to avoid a penalty when doing a Roth IRA rollover?


Thanks

Kannon

The usual ways are to withhold from other sources if possible or to pay estimated taxes so you meet one of the safe harbors or fulfill Sch AI(form 2210) requirements for lumpy income.

 

[Fedup]

I owe tax for years and the penalty has always been less than $100. I think I owed about $7k for federal and paid like $70 penalty. The cost of a cheap, very cheap CPA.


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