Question on 1099-R code - transfer from SEP IRA to Roth

[newuser]

I am new here and this is my first post, so if I've done something incorrectly, please point me in the right direction.

On to my question: I just received a 1099-R from Vanguard and the code is showing a normal distribution from my SEP. I am confused by the codes, as it seems there should be something to show that the funds went to my Roth account. The details in the transaction reports from Vanguard are showing correctly, but I'm concerned about how it's being reported to the IRS. This is also my first time doing a Roth conversion, so just want to make sure everything goes smoothly.

Thanks.

 

[Gumby]

I just looked at my Vanguard 1099-R's reflecting my Roth conversions in 2023 and 2024 and they both have gross distribution in box 1; Taxable amount in 2a (which is the same amount); (X) in box 2b ("Taxable amount not determined); Distribution code 7 in Box 7; IRA/SEP/SIMPLE (X) and the gross amount in Box 16 ("State distribution"

In 2023, I had taxes withheld, so there is also the Federal Income Tax Withheld amount in Box 4 and the State withholding information in boxes 14 and 15.

To my knowledge, that is all the information you get on your 1099R for a Roth conversion.

 

[MarieIG]

I pulled my 1099-R from 2023. It showed my distribution, but did not indicate on that form that I had made Roth conversions. (I did not withhold taxes in 2023 - I did in 2022 and 2024).

 

[SecondCor521]

Welcome to the board!

If you are over age 59 1/2, then the normal situation is a box 7 code of 7, just like Gumby says above. If you were under 59 1/2 and did a Roth conversion (like me), then the box 7 code I get is 2 - Under age 59 1/2 with a known exception.

The 1099-R only deals with the "money was taken out of your SEP IRA" half of the equation so it can be properly tracked and taxed by the IRS. The "where the money went" part is reflected on your 5498, where the converted amount will show up on line 3. 5498s are sent to you and to the IRS, but 5498s are sent out in May instead of January.

You can report the Roth conversion on your tax return on IRS Form 8606 part II lines 16 and 18, although if you're over 59 1/2 and have had the Roth for at least five years then there really isn't much reason to do so.

 

[newuser]

Thanks to everyone who replied. This is consistent with the 1099-R that I received. I wasn't familiar with the 5498, so that clears things up enormously.

 

[cathy63]

You can report the Roth conversion on your tax return on IRS Form 8606 part II lines 16 and 18, although if you're over 59 1/2 and have had the Roth for at least five years then there really isn't much reason to do so.

I think OP does have to file Form 8606. From the instructions under "Who Must File":

You converted an amount from a traditional, traditional SEP, or traditional SIMPLE IRA to a Roth, Roth SEP, or Roth SIMPLE IRA in 2024.

 

[target2019]

Your tax software should have a check box somewhere on the 1099 entry form that indicates all was converted to Roth. Then the additional required forms are generated for you.

 

[SecondCor521]

I think OP does have to file Form 8606. From the instructions under "Who Must File":

As usual, you are correct. I knew about the 8606 who must file rule for Part II. But for someone for whom all subsequent Roth distributions are qualified, I cannot for the life of me fathom why such a filing requirement matters.

As an example, my Dad has had a Roth IRA for decades and he's turning 89 in March. I did a modest Roth conversion for him in 2024. I'll probably file an 8606 with his return simply because I know the requirement and it's not a big deal to comply. But I can't see why it has any tax consequence whatsoever.

For myself, who is still under 59 1/2, reporting the Roth conversions on the 8606 makes sense because I might tap that Roth before 59 1/2 and would have to go through the basis exercise to prove that my distribution is not taxable.

If you have any insight on this, I'd be interested in it.

 

[cathy63]

As usual, you are correct. I knew about the 8606 who must file rule for Part II. But for someone for whom all subsequent Roth distributions are qualified, I cannot for the life of me fathom why such a filing requirement matters.

As an example, my Dad has had a Roth IRA for decades and he's turning 89 in March. I did a modest Roth conversion for him in 2024. I'll probably file an 8606 with his return simply because I know the requirement and it's not a big deal to comply. But I can't see why it has any tax consequence whatsoever.

For myself, who is still under 59 1/2, reporting the Roth conversions on the 8606 makes sense because I might tap that Roth before 59 1/2 and would have to go through the basis exercise to prove that my distribution is not taxable.

If you have any insight on this, I'd be interested in it.

I assume it's because for some of us, the amount shown on the 1099-R for the conversion is not 100% taxable. 8606 Part II keeps me from being double-taxed on the non-deductible contributions I made back before Roth conversions were invented.

 

[Gumby]

I always file a Form 8606 because I foolishly made non-deductible IRA contributions back in the 1990's and have a basis in my IRA.

 

[SecondCor521]

I assume it's because for some of us, the amount shown on the 1099-R for the conversion is not 100% taxable. 8606 Part II keeps me from being double-taxed on the non-deductible contributions I made back before Roth conversions were invented.

Ah, right, thank you!

My Dad and I (and most folks, as you well know) don't have traditional IRA basis so that aspect is not applicable to us.