Tax Q&A;: Roth Conversions
This daily tax season column publishes questions from readers and answers from local members of the California Society of Certified Public Accountants.
Q: I converted my traditional nondeductible IRA to a Roth IRA in early 1998. I reversed the conversion later from Roth to traditional and reconverted a day later from traditional to Roth again. How do I report these conversions?
A: Multiple conversions from traditional IRAs to Roth IRAs and back to traditional IRA status were permitted until Nov. 1, 1998. Technically, these types of conversions are referred to as “recharacterizations.”
You should have received IRS Form 1099-R for each conversion and recharacterization involved. You should put the total amounts reflected on those forms on line 15a of your Form 1040 (or line 10a of Form 1040A).
You then need to fill out Form 8606--Part II: Conversions From Traditional IRAs to Roth IRAs. On line 14 of Form 8606, you will need to include the amounts of the two transfers to Roth IRAs from the traditional IRAs. On line 14b, you will subtract the amount transferred back (recharacterized) to a traditional IRA. The remaining amount (line 14c) is the amount of the second conversion to a Roth IRA that is the amount subject to inclusion in your income either for 1998 and the three following years or in full in 1998, depending on how you elect to be taxed.
You will also need to complete Part III of Form 8606. On line 18, you will enter the amount shown on Form 1099-R for the Roth IRA that was reconverted to the second traditional IRA. On line 19b you will show the amount that went into the second traditional IRA, and you will enter zero on lines 20 and 26.
There may be some differences in the amounts shown on forms 1099-R between what was transferred from one IRA according to the 1099-R and what was received by the other IRA when the recharacterization occurred. For example, your IRA’s market value may have changed or you may have added more contributions. Also, a taxpayer may have a “basis” (i.e., money represented by nondeductible contributions) in a traditional IRA account, which could lower the taxable amount of that person’s conversion. In such cases, the instructions for Form 8606 require that an explanation and reconciliation of the amounts reflected on Form 8606 and line 15a of Form 1040 (or line 10a of Form 1040A) be attached to the return.
--KIP DELLINGER, CPA, West Hollywood
For more information on taxes and to see other questions and answers in this series, go to The Times’ Web site at https://www.latimes.com/taxes. To find a CPA, visit the California Society of CPAs at https://www.calcpa.org.
