Tax Help with Backdoor Roth Conversion

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Tax Help with Backdoor Roth Conversion

Postby simpatico » Mon Jan 28, 2013 6:39 pm

In 2012 I contributed 12,000 (2011 and 2012 contributions) of the after tax dollars to my contributory IRA, and straight after that converted total amount to Roth. Yesterday I received 1099R where I have:
box 1. Gross distribution $12,000
box 2a. Taxable amount $12,000
box 2b. Taxable amound not determined.
Is that correct? Does that mean that I have to pay taxes on the distribution amount even though it was distributed into Roth and already taxed? The form doesn't indicate anywhere that I did a conversion.
I called Schwab (where my IRAs are), and they said that I will receive the document on conversion in May. When I asked how to file tax return in April - they said that IRS would know that the money was converted. I don't believe that. :((
What do I do?
Tax Gurus please help!
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Re: Tax Help with Backdoor Roth Conversion

Postby SSSS » Mon Jan 28, 2013 6:53 pm

"Taxable amount not determined" is the key thing here. The taxable amount depends on whether your traditional IRA contribution was deductible or non-deductible (if you're doing backdoor Roth, I assume you're far above the income limit to deduct traditional IRA contributions), and the balance and basis of any other traditional IRAs you have (not just this one account).

If you had no other traditional IRAs, started with no money and no basis in this IRA, made a $12,000 non-deductible contribution, converted to Roth, and the amount was still $12,000 at the time of conversion (no gain or loss), then your taxable amount is $0 ($12,000 conversion amount - $12,000 basis = 0).

All the major tax programs should be able to sort this out if you answer the questions accurately. If you didn't start the process with no money in any traditional IRAs, then you may have some work to do sorting out your basis from previous years.
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Re: Tax Help with Backdoor Roth Conversion

Postby kaneohe » Tue Jan 29, 2013 2:51 am

As Schwab said, you should get this form in May which documents the Roth conversion
http://www.irs.gov/pub/irs-pdf/f5498.pdf

Admittedly, that 1099R is confusing at first glance with a number in taxable and a declaration that taxable amount was not determined. I suppose they are just putting a possible guess w/ the admission that they don't really know since they don't know whether or not you deducted those contributions or whether you have other deductible TIRAs.

You need to file form 8606 which will document the non-deductible contributions , the Roth conversion , and the taxable amount of the conversion.
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Re: Tax Help with Backdoor Roth Conversion

Postby simpatico » Tue Jan 29, 2013 10:20 am

Thank you all so much! I feel better now... :D
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Re: Tax Help with Backdoor Roth Conversion

Postby BuckyBadger » Tue Jan 29, 2013 10:43 am

Not to change the subject, but isn't $12,000 into 2011 and 2012 IRAs $1,500 more than permitted?

Maximum for 2011 = $5,000
Maximum for 2012 = $5,500

Total maximum for 2011 and 2012 = $10,500.

No?
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Re: Tax Help with Backdoor Roth Conversion

Postby SSSS » Tue Jan 29, 2013 11:05 am

BuckyBadger wrote:Not to change the subject, but isn't $12,000 into 2011 and 2012 IRAs $1,500 more than permitted?

Maximum for 2011 = $5,000
Maximum for 2012 = $5,500

Total maximum for 2011 and 2012 = $10,500.


He might be old enough to make catch-up contributions. I noticed that too but I wasn't going to be all like "HEY GRANDPA" because that's not very nice.
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Re: Tax Help with Backdoor Roth Conversion

Postby suming » Tue Jan 29, 2013 11:20 am

SSSS,
I was shocked too when I received 1099R in the mail last week. My husband and I file 'married joint tax' and 'Marginal AGI' was aruond the broader line of 17,500 for 2012. Therefore, I tested the water by transfer 500 from my checking account to Traditional IRA, then transfer to Roth IRA. Both TIRA and Roth IRA are newly created accounts with Fedility in 2012. I plan to get some state tax benefit because I live in Illinois.

Now I am pretty sure my MAGI is below 17,500 for 2012. Does that mean I should have directly transferred money to my Roth IRA instead? Is there amount limitation for me each year?
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Re: Tax Help with Backdoor Roth Conversion

Postby BuckyBadger » Tue Jan 29, 2013 12:12 pm

SSSS wrote:
BuckyBadger wrote:Not to change the subject, but isn't $12,000 into 2011 and 2012 IRAs $1,500 more than permitted?

Maximum for 2011 = $5,000
Maximum for 2012 = $5,500

Total maximum for 2011 and 2012 = $10,500.


He might be old enough to make catch-up contributions. I noticed that too but I wasn't going to be all like "HEY GRANDPA" because that's not very nice.


Oh - thanks. I forgot about that!

(And to the OP, no offense intended!!)
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