Tax Question: In-Plan Rollover?, First Year of Contribution?

[TromboneAl]

I guess it's me, but the answers to these questions are not obvious from the terms they use, and I haven't found a good help or tutor topic that answers my questions.

Very simple, in 2011 I did a Roth conversion of $32,000 from one Vanguard fund to another.



Questions:

First year of Roth contribution -- 2011? The year that this contribution is for, or the first year that a contribution was made to that account??

Amount allocable to an in-plan Roth rollover: $32,000 or $0? Is this an in-plan Roth rollover, because it's all Vanguard or is this a new term related to 401 plans??

Thanks.

 

[travelover]

I think this is what it is getting at.

What is a 5-taxable-year period of participation? How is it calculated?
The 5-taxable-year period of participation begins on the first day of your taxable year for which you first made designated Roth contributions to the plan. It ends when five consecutive taxable years have passed. If you make a direct rollover from a designated Roth account under another plan, the 5-taxable-year period for the recipient plan begins on the first day of the taxable year that you made designated Roth contributions to the other plan, if earlier.
If you are a reemployed veteran making designated Roth contributions, they are treated as made in the taxable year of qualified military service that you designate as the year to which the contributions relate.
Certain contributions do not start the 5-taxable-year period of participation. For example, a year in which the only contributions consist of excess deferrals will not start the 5-taxable-year period of participation. Further, excess contributions that are distributed to prevent an ADP failure also do not begin the 5-taxable-year period of participation.

Retirement Plans FAQs on Designated Roth Accounts

 

[ERD50]

A general suggestion:

If you are not sure, go ahead and download the forms and the instructions from the IRS and do it manually in parallel.

I had this situation with TaxAct. It asked for a number, but it wasn't specific - it did not say "Enter the value on Line XX of Form ABC". It said something like, "Enter the amount of net capital gains that are part of Line AA of form XYZ ." Umm, how do I know what is include on that line, the tax software figured that line out?

After going through the instructions manually, I found that there were numerous worksheets required, and the result of those worksheets gave me the numbers I needed. So I'm keeping hard copies of those worksheets. But Taxact did not tell me about the worksheets. Makes the whole point of tax software some what of a wash.

And in my experience, TurboTax was worse.

-ERD50

 

[Alan]

Al,

I've done 2 IRA conversions in the last 2 tax years, both from tIRA's, and both within the same company (Vg and Fido) and not been asked those questions. I use TT and import from the previous year so I guess the S/W knows the years I made my first contribution.

If the $32k you are converting is from a tIRA then I don't believe it is an in-plan rollover.


I guess the year you made your 1st Roth contribution is important because of rules around holding a Roth for 5 years before you can withdraw without worrying about a penalty. I would put in the year I first contributed to a Roth (or made a conversion).

 

[kaneohe]

In-Plan Roth Rollover Conversions Guidance Issued by IRS - kitces.com | Nerd's Eye View

similar to Alan's

 

[TromboneAl]

Yes, because I don't have any 401 plans, and this is just a rollover from a traditional IRA, my conclusion is that these to questions are not applicable to me. There is no "plan."

Thus, the answers should be:

1. None Selected

and

2. "This is not applicable, so there is no way to answer this question with a number"

But I don't think answer #2 is going to fit in the box.

I guess I will use a variant of ERD50's technique to figure out what the end result of the different answers would be.

Time to do taxes: 20 minutes
Time to resolve ambiguous instructions: 5 hours

 

[travelover]

......
Time to do taxes: 20 minutes
Time to resolve ambiguous instructions: 5 hours

I feel your pain. TaxAct doesn't seem to accept the answer "Various" for purchase date of sold assets, even though in my case they're all long term capital gains.

 

[MBAustin]

I usually go to the "forms" section and look at what the program populates after finishing a topic. Sometimes that clears up what they were really asking for. But the whole tax code has gotten so much more complex over the past 20 years that it's hard to know sometimes.

 

[ERD50]

I feel your pain. TaxAct doesn't seem to accept the answer "Various" for purchase date of sold assets, even though in my case they're all long term capital gains.

IME, it does 'accept' it, but it flags it every time and asks if it is long/short. There should be a way to say "Yes, I checked and it is LONG TERM - don't ask again!"

Same thing with selling a call and having it expire, that is essentially a short sale - you sell and then it is 'bought back' at zero $ at expiry. So sold first, then bought. It questions it every time I run the alerts, annoying. Why can't I click a box and acknowledge it is a short sale?

-ERD50

 

[TromboneAl]

IME, it does 'accept' it, but it flags it every time and asks if it is long/short.
-ERD50

Right. I didn't mind this, except that the way it worded the flag, it made it sound like you had made an error.

In a similar vein, TaxAct allows you to mark entries as "Estimate." That's great, you can go back and check/fix these later. However, you can't do that for entries that involve a drop-down selection box (as in the First year thing above).