Roth conversions and 8606 form

[engr]

Hello all,

Last year (2020) I started the beginnings of Roth conversions. Trying to reduce my traditional ira balance before rmds start in 4 years. I have also begun monthly withdrawals from the Ira to burn down the balance. I realize I’m discarding the interest within the retirement account but I think the future rmds will force me to withdraw more dollars than I need. So, in the long run I think I’ll come out ahead in the end.

My question is how to fill out the 8606 form at tax time. My understanding is that only Part 2 of the 8606 needs to be filled out. In year 2020 I converted $20k. On 8606 part 2 line 16 I enter $20k. Line 17 is zero since I had no previous basis. Line 18 is the taxable amount which is $20k and gets reported on 1040-SR line 4b and I pay the tax.

I plan on converting an additional $30k in tax year 2021. When I fill out the new 8606 do I just put $30k on lines 16 and 18 again? I plan on keeping track of the dollar amounts and dates etc . How does the irs know that I converted a total of $50k from the traditional ira and placed into the Roth IRA bucket. Do I have to put some note on the 8686 form that I previously converted $20k from the prior year?

Just want to ensure the irs understands I want to do a series of Roth conversions and if I have to give the irs notice that my Roth totals will be increasing over time due to these conversions

Thanks for any insights.

 

[cathy63]

My question is how to fill out the 8606 form at tax time. My understanding is that only Part 2 of the 8606 needs to be filled out. In year 2020 I converted $20k. On 8606 part 2 line 16 I enter $20k. Line 17 is zero since I had no previous basis. Line 18 is the taxable amount which is $20k and gets reported on 1040-SR line 4b and I pay the tax.

I plan on converting an additional $30k in tax year 2021. When I fill out the new 8606 do I just put $30k on lines 16 and 18 again?

Yes, this is all correct.

I plan on keeping track of the dollar amounts and dates etc . How does the irs know that I converted a total of $50k from the traditional ira and placed into the Roth IRA bucket. Do I have to put some note on the 8686 form that I previously converted $20k from the prior year?

You don't need to note prior conversions. If the IRS needs to know, they will look back at your 8606 forms and see how much you had converted previously. However, this only matters if you withdraw the converted money before you turn 59 1/2; but since you said your RMDs will start in 4 years, you must already be older than that.

Since you're over 59 1/2, if you've had any Roth IRA account for at least 5 years, then you can withdraw all the money in your current account without paying taxes, so there's no need to track which portion of the account is contributions vs conversions vs earnings.

If you have had a Roth account for less than 5 years, then you will pay tax on the earnings if you withdraw those. In that case you would fill out part 3 of form 8606 and you might also need to fill out part 1 of form 5329. Withdrawals from a Roth IRA are always contributions first, then conversions, then earnings, so you can take out all past contributions plus the $50K conversions without owing any tax.

 

[engr]

Thanks for the quick reply !