Tax Forms (Rollover, Recharacterization, Conversion)

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Topic Author
kappy
Posts: 155
Joined: Tue Jun 21, 2016 7:13 pm

Tax Forms (Rollover, Recharacterization, Conversion)

Post by kappy » Mon Dec 02, 2019 8:51 pm

I'm getting myself prepared for tax season after several new financial items occurred this year. I started the year with money in my workplace 401k, a tIRA, and Roth IRA. I made a Roth IRA contribution back in January and realized later in the year that my income would be too high for a direct contribution. I rolled my tIRA into my 401k, then recharacterized my Roth IRA contribution into the (now empty) tIRA, and I plan on converting this back into the Roth next week.

After doing a little research, it sounds like I'll get a 1099-R for the tIRA to 401k rollover which I'll report zero taxable on my 1040 with the reason being "rollover." Do I get any tax forms for the recharacterization? How about the tIRA to Roth IRA conversion? It looks like I'll get another 1099-R for this and I need to fill out form 8606. Does the tIRA to 401k rollover earlier in the year affect what I put on form 8606?

Thanks in advance!

lakpr
Posts: 3094
Joined: Fri Mar 18, 2011 9:59 am

Re: Tax Forms (Rollover, Recharacterization, Conversion)

Post by lakpr » Mon Dec 02, 2019 8:55 pm

kappy wrote:
Mon Dec 02, 2019 8:51 pm
I'm getting myself prepared for tax season after several new financial items occurred this year. I started the year with money in my workplace 401k, a tIRA, and Roth IRA. I made a Roth IRA contribution back in January and realized later in the year that my income would be too high for a direct contribution. I rolled my tIRA into my 401k, then recharacterized my Roth IRA contribution into the (now empty) tIRA, and I plan on converting this back into the Roth next week.

After doing a little research, it sounds like I'll get a 1099-R for the tIRA to 401k rollover which I'll report zero taxable on my 1040 with the reason being "rollover." Do I get any tax forms for the recharacterization? How about the tIRA to Roth IRA conversion? It looks like I'll get another 1099-R for this and I need to fill out form 8606. Does the tIRA to 401k rollover earlier in the year affect what I put on form 8606?

Thanks in advance!
Yes you will get a 1099-R that would show a conversion of tIRA amount to Roth IRA.
No, the tIRA to 401k rollover does not affect what you put on Form 8606. What affects Form 8606 is what the balance as of December 31, 2019 is, in your traditional IRA. Which should be zero, if you can get the tIRA to Roth-IRA conversion done before then. If not zero, then you will get caught by the pro-rata rule.

kaneohe
Posts: 5956
Joined: Mon Sep 22, 2008 12:38 pm

Re: Tax Forms (Rollover, Recharacterization, Conversion)

Post by kaneohe » Mon Dec 02, 2019 10:32 pm

from the instructions for F8606:

"You made a contribution to a Roth IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a traditional IRA. Report the nondeductible traditional IRA portion of the recharacterized contribution, if any, on Form 8606, Part I. Don’t report the Roth IRA contribution (whether or not you recharacterized all or part of it) on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2018, include the amount transferred from the Roth IRA on Form 1040, line 4a; or Form 1040NR, line 17a. If the recharacterization occurred in 2019, report the amount transferred only in the attached statement, and not on your 2018 or 2019 tax return."

Alan S.
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Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Tax Forms (Rollover, Recharacterization, Conversion)

Post by Alan S. » Mon Dec 02, 2019 10:57 pm

kappy wrote:
Mon Dec 02, 2019 8:51 pm
I'm getting myself prepared for tax season after several new financial items occurred this year. I started the year with money in my workplace 401k, a tIRA, and Roth IRA. I made a Roth IRA contribution back in January and realized later in the year that my income would be too high for a direct contribution. I rolled my tIRA into my 401k, then recharacterized my Roth IRA contribution into the (now empty) tIRA, and I plan on converting this back into the Roth next week.

After doing a little research, it sounds like I'll get a 1099-R for the tIRA to 401k rollover which I'll report zero taxable on my 1040 with the reason being "rollover." Do I get any tax forms for the recharacterization? How about the tIRA to Roth IRA conversion? It looks like I'll get another 1099-R for this and I need to fill out form 8606. Does the tIRA to 401k rollover earlier in the year affect what I put on form 8606?

Thanks in advance!
1099R forms you will receive:
1) From your IRA custodian reporting a direct rollover to your 401k. You will report this on line 4 of Form 1040 and will have to include an explanatory statement with your return about this rollover (date, amount, and plan rolled to).
2) From your Roth custodian reporting a recharacterized contribution. 1099R will be coded N to indicate that the contribution was for 2019. The gross amount transferred goes on line 4a of your 1040, and you should also include an explanatory statement for the recharacterization (date, contribution amount recharacterized, and what it was worth when recharacterized).
3) From your IRA custodian reporting the conversion distribution. You report this on Form 8606 and also on 4a and 4b. You also must report the non deductible contribution on Part I of the 2019 8606.

If the amount in your TIRA now is more than the amount of your contribution, you will have some pre tax gains in your TIRA. When you convert the entire TIRA balance, the amount of gain will be taxable and shown on line 18 of Form 8606 and 4b of Form 1040.

In May of 2020, you will receive:
1) Form 5498 reporting a regular Roth contribution
2) Form 5498 reporting a recharacterization transfer to your TIRA
3) Form 5498 reporting a conversion contribution to your Roth IRA
4) You will NOT receive a 5498 from your 401k plan reporting receipt of the IRA rollover. 401k plans do not issue Form 5498.

Just keep these forms and check to make sure they match up to the 1099R forms in amount.

You would normally use a tax program to report this or have your taxes done professionally. Make sure the return is correct before it is filed. If you file yourself you may find that some tax programs handle this differently than others.

NOTE: Kaneohe posted the latest 8606 Inst, but those are from the 2018 edition. Since all your activity (contribution and recharacterization) takes place in 2019, when reading the Inst that Kaneohe posted, move up all years stated by 1, ie substitute 2019 for 2018 and 2020 for 2019. That instruction will then agree to what is posted above and also with the 2019 8606 Inst when released.

Topic Author
kappy
Posts: 155
Joined: Tue Jun 21, 2016 7:13 pm

Re: Tax Forms (Rollover, Recharacterization, Conversion)

Post by kappy » Tue Dec 03, 2019 6:11 pm

Thanks everyone for the detailed posts!

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