Roth IRA basis

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pointyhairedboss
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Roth IRA basis

Post by pointyhairedboss »

Turbo Tax is asking me whether I want it to keep track of my roth IRA basis. It claims:
"Keeping track of [Pointy]'s Roth IRA contributions and conversions, or 'basis', could help you in the future if:
- You receive an early withdrawal from a Roth IRA
- You close a Roth IRA and its value decreases

While I keep track of my roth transactions in general, I have never kept track of the overall roth basis figure. It would take me a bit of time to go through the records and calculate this number. Is there a worthwhile endeavor? Is there a good need to keep track of this figure?

ps Yes, I do keep track of the basis on funds in my taxable accounts, and I do keep track of the overall basis in my traditional ira account.
kaneohe
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Post by kaneohe »

Keeping track of your Roth basis should be much easier than for your taxable investments. You may be thinking in terms of reinvestments of div/CG which you need to do for taxable investments. For the Roth, however, all you need to do is to keep track of contributions , conversions, and the dates (not the earnings). This could be very useful if you need to withdraw funds before age 59.5. Your withdrawals are considered to come from contributions first, then conversions, then earnings. Contributions come out tax & penalty free; conversions are subject to 5 yr clocks after conversion to avoid penalties upon withdrawal so it is useful to track this info.
Last edited by kaneohe on Sun Feb 20, 2011 4:47 pm, edited 1 time in total.
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SSSS
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Post by SSSS »

It's entirely likely you'll never need this number. It's only for if you ever wish to take advantage of the Roth IRA's penalty-free withdrawal of basis (but not gains) prior to retirement age. I think it's safe to say that most people here don't raid their IRAs (except maybe for early retirement purposes).

That said, once you add it up the first time, it's very easy to keep it updated each year... I keep a text file and I just tack on a +$5000 when I do my taxes each year.
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pointyhairedboss
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Post by pointyhairedboss »

I guess another argument would be to calculate the basis now - while its fairly easy as the roth hasn't been around that long - in advance of whatever crazy requirement that will be tacked on in the future.
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ThePrune
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Post by ThePrune »

A Roth IRA has two types of "basis": direct contributions and conversions. Everything else is earnings.

It is wise to keep track of these numbers since you'll need them if you make non-qualified withdrawals, i.e. withdrawals before age 59 1/2 or before you've had at least one Roth open for 5 years. This is because there are different 10% penalty implications for withdrawing contributions (no penalty) and conversions (rolling 5 year rule applies). The IRS forms you file after a non-qualified withdrawal will require you to enter these numbers, so tracking them is useful.

But if you are already over age 59 1/2, then it's probably not worth the effort to track contributions and conversions.
Investment skill is often just luck in sheep's clothing.
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pointyhairedboss
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Post by pointyhairedboss »

I am now trying to calculate my roth ira basis.

Suppose I had a traditional ira with a balance of $4300, consisting of $4000 in post tax contributions and $300 in growth. Suppose I convert all that IRA to a roth ira. Due to this conversion, how much have I added to my roth ira basis? $4300?
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BruceM
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Post by BruceM »

pointyhairedboss wrote:I am now trying to calculate my roth ira basis.

Suppose I had a traditional ira with a balance of $4300, consisting of $4000 in post tax contributions and $300 in growth. Suppose I convert all that IRA to a roth ira. Due to this conversion, how much have I added to my roth ira basis? $4300?
Technically, you've added the full $4,300 to your new Roth's basis. But if you are not yet 59.5 and you've not held the conversion for the minimum 5 years, and you withdraw $4,300 from the Roth (no other Roth contributions or conversions have been made since this conversion), then $300 would be subject to the 10% penalty, while the $4,000 would not. Take a look at Pub 590, p.66 under the heading Distributions of conversion and certain rollover contributions within 5-year period.

http://www.irs.gov/pub/irs-pdf/p590.pdf

And to the OP....I too noticed that TT was asking if I want to track Roth basis. I find this odd, as I've entered in all past returns my Roth contribution for that year, so either TT was not keeping track of that or this is an oversight in this year's version. Because I'm now 59.5 and made my first Roth contribution in 1999, tracking basis doesn't matter. But if it did, I'd have to go back and try to find all past forms 5498 for each year I (and DW) made Roth contributions or go to my custodian to see if they have them.....either case, it would be a real pain.

BruceM
yukon50
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Re: Roth IRA basis

Post by yukon50 »

So how do you keep track of this information? Just save the Form 5498 from each year in a big file? And save 1099's to keep track of conversions?

I noticed Form 8606 Line 22 and 24 has a spot for basis in Roth contributions and conversions. Should this be updated and reported each year on this form?
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

No, don't use the 8606 form by itself.

I recommend a cumulative tally sheet as well as retaining the 5498 forms. However, the 5498 forms will be insufficient if you made an excess contribution or took distributions. For the tally sheet starting with the year you first made a Roth contribution (1998 first year possible), show each year you had Roth activity in a separate column for:

1) Regular contribution amount corrected for any excess contribution corrections
2) Conversion contribution amount corrected for any recharacterizations
3) Distribution amount from regular contributions
4) Distribution from conversions
5) Remaining balance of regular contributions
6) Remaining balance of conversions

That way, you can look at the latest amounts in Columns 5 and 6 and easily determine the tax impact of distributions and obtain the figures to report them on Form 8606 including lines 22 and 24. You will have to look back to the age of your conversions to determine if you have met the 5 year conversion holding period to avoid the 10% penalty.

NOTE: If you claim a qualified first home distribution, you will have to make special adjustments.
NOTE: If you rollover from a designated Roth (Roth 401k, 403b etc), adjust columns 1 accordingly (see your 1099R).

There is never a need to track earnings in the Roth. At any point in time earnings are the excess over Columns 5 and 6.
yukon50
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Re: Roth IRA basis

Post by yukon50 »

Is it necessary to report the running total of cumulative conversions and contributions each year for Lines 22 and 24? I've never done so in the past.
yukon50
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Re: Roth IRA basis

Post by yukon50 »

Oh I just realized that 22 and 24 only need to be done if one takes a distribution from a Roth. In other years, these amounts don't need to be reported.

But your tracking system is a good idea. Basically keep 5498 and 1099-R's until age 59.5. And also keep track of distributions, return of excess contributions, etc.
madbrain
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Re:

Post by madbrain »

ThePrune wrote:A Roth IRA has two types of "basis": direct contributions and conversions. Everything else is earnings.
That's not the case.

There is a third type of basis - those that results from rollovers of 401k after-tax contributions to the Roth IRA.

Unfortunately, it appears that Turbo Tax does not track these anywhere.

I think rollovers from a Roth 401k to Roth IRA are not tracked as basis, neither the contributions or earnings.

It seems to me that this would pose a problem in case of early withdrawal from the Roth IRA. How does one figure it out ?
Keep the 1099-R rollover forms for decades ?

Or do the early withdrawal penalties apply to those types of rollovers ?
ljwobker
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Re: Roth IRA basis

Post by ljwobker »

I'm re-opening/bumping this thread because I have *exactly* the same question as madbrain does immediately above me...
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

The question from 2 years ago encompassed two situations:

1) Direct rollover from non Roth 401k to Roth IRA
2) Direct rollover from Roth 401k to Roth IRA

Since these are both direct rollovers and not distributions, the 1099R will not have sufficient data to allow you to track Roth IRA accounting. For a distribution (not a direct rollover), the 1099R will show the basis in Box 5 and the amount of IRRs under 5 years in Box 10.

Most of these will be direct rollovers however, and you will need to get this data separately from the 1099R, perhaps from your final account statement. This lack of transparency will create reporting problems for taxpayers.

1) Direct rollover non Roth 401k to Roth IRA - treat the same as Roth IRA conversion. You will need the year and the breakdown between the taxable and non taxable amount of the Roth rollover. You can lump these with regular Roth conversions if done in the same year.

2) Direct rollover from Roth 401k to Roth IRA - you will need to get your contribution amounts from your plan statement. Treat them the same as regular Roth IRA contributions. If you did IRRs, you will need to know the year and the taxable and non taxable amounts in the same manner as for a Roth IRA conversion. The 5 year holding period for conversions continues from the Roth 401k to the Roth IRA. Any value in excess of your Roth 401k basis is earnings. You do not have to track earnings because earnings in your Roth IRA is any value in excess of the Roth IRA basis plus the basis brought over from the Roth 401k.

In summary, anything rolled into your Roth IRA must then be accounted for using Roth IRA contribution categories, ie regular Roth contributions, taxable conversions and non taxable conversions.

A real mess once your lose control.
Silence Dogood
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Re: Roth IRA basis

Post by Silence Dogood »

Alan S. wrote:Since these are both direct rollovers and not distributions, the 1099R will not have sufficient data to allow you to track Roth IRA accounting. For a distribution (not a direct rollover), the 1099R will show the basis in Box 5 and the amount of IRRs under 5 years in Box 10.

Most of these will be direct rollovers however, and you will need to get this data separately from the 1099R, perhaps from your final account statement. This lack of transparency will create reporting problems for taxpayers.
I'm confused.

Why wouldn't the 1099R show the basis and amount of IRRs?

What's the difference between this situation and the one mentioned here:

viewtopic.php?f=2&t=115859
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

A good question. There is a conflict between those posts.

The prior thread comment from last year made about the 1099R for a Roth 401k direct rollover to a Roth IRA was not correct. That 1099R will NOT have Boxes 5, 10, or 11 filled with basis information from the Roth 401k. Therefore, the taxpayer will need to get this info from a plan statement, letter etc. to maintain records for his Roth IRA. The same info is needed, but it will not be on the 1099R.

Note that the 1099R for an IRR itself (pre tax 401k to Roth 401k) will have a breakdown since an IRR is a taxable distribution. Same for a rollover from after tax sub account to a Roth IRA (mega backdoor Roth). But when the Roth 401k (already a Roth) is rolled to a Roth IRA, there is no current tax due and that 1099R will lack critical information that would be included for a distribution or qualified rollover contributions to a Roth IRA from a non Roth account.

IRS 1099R instructions are meant to reflect current reporting of a distribution. Future tracking of rollover amounts in the destination account is not factored into the IRS considerations for 1099R completion, so there are some situations where the taxpayer must get the necessary information elsewhere and then maintain their own IRA record keeping for proper reporting of future IRA distributions.

Another one of those cases is the direct rollover of after tax contributions in the pre tax account to a TIRA. The 1099R will not show the basis that the taxpayer needs to add to his 8606 for TIRA accounts.

Does this address your question?
Silence Dogood
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Re: Roth IRA basis

Post by Silence Dogood »

Alan S. wrote:A good question. There is a conflict between those posts.

The prior thread comment from last year made about the 1099R for a Roth 401k direct rollover to a Roth IRA was not correct. That 1099R will NOT have Boxes 5, 10, or 11 filled with basis information from the Roth 401k. Therefore, the taxpayer will need to get this info from a plan statement, letter etc. to maintain records for his Roth IRA. The same info is needed, but it will not be on the 1099R.

Note that the 1099R for an IRR itself (pre tax 401k to Roth 401k) will have a breakdown since an IRR is a taxable distribution. Same for a rollover from after tax sub account to a Roth IRA (mega backdoor Roth). But when the Roth 401k (already a Roth) is rolled to a Roth IRA, there is no current tax due and that 1099R will lack critical information that would be included for a distribution or qualified rollover contributions to a Roth IRA from a non Roth account.

IRS 1099R instructions are meant to reflect current reporting of a distribution. Future tracking of rollover amounts in the destination account is not factored into the IRS considerations for 1099R completion, so there are some situations where the taxpayer must get the necessary information elsewhere and then maintain their own IRA record keeping for proper reporting of future IRA distributions.

Another one of those cases is the direct rollover of after tax contributions in the pre tax account to a TIRA. The 1099R will not show the basis that the taxpayer needs to add to his 8606 for TIRA accounts.

Does this address your question?
Hi Alan,

Thanks again for all of your help, I really appreciate it.

I think I get it.

I already received an IRR 1099R from Fidelity for last year (2015) and reported this on my taxes. My return was approved by the IRS and they direct deposited my refund today (luckily I had the American Opportunity Tax Credit which made the IRR a better idea).

I have both a paper copy of the 1099R and a digital copy saved on my computer (and I have a backup hard drive). I'll make sure I keep this.

It looks like the main problem is that the IRR 1099R that I have doesn't show any amount that I contributed directly to the Roth 401k. So I'll need to keep some kind of record of my direct contributions to the Roth 401k. That plus the IRR amount will be my Roth basis from the Roth 401k (which I'll have to add to the Roth IRA basis to get the total).

(IRR amount) + (Roth 401k contributions) + (Roth IRA contributions) = Roth basis

Does that sound right?

Again, thanks for all your help.

If I didn't have the Bogleheads I don't know who I'd turn to about all this stuff.
Silence Dogood
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Re: Roth IRA basis

Post by Silence Dogood »

Also, looking at my IRR 1099R from Fidelity, for some reason boxes 5 and 10 both show "$0.00" and box 11 is empty.

The way I understand it (I obviously don't), shouldn't box 5 ("desig Roth contrib") show the Roth 401k contributions I made and shouldn't box 10 ("amount allocable to IRR within 5 years") show the amount of the IRR?

I understand Fidelity has no way of knowing the first year I made a designated Roth contribution (so I understand box 11 being left blank). I don't understand why boxes 5 and 10 show "$0.00."

I feel stupid asking this but even looking over the IRS instructions I don't understand.

https://www.irs.gov/instructions/i1099r ... ml#d0e1636

https://www.irs.gov/instructions/i1099r ... ml#d0e1776
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

Silence Dogood wrote:Also, looking at my IRR 1099R from Fidelity, for some reason boxes 5 and 10 both show "$0.00" and box 11 is empty.

The way I understand it (I obviously don't), shouldn't box 5 ("desig Roth contrib") show the Roth 401k contributions I made and shouldn't box 10 ("amount allocable to IRR within 5 years") show the amount of the IRR?

I understand Fidelity has no way of knowing the first year I made a designated Roth contribution (so I understand box 11 being left blank). I don't understand why boxes 5 and 10 show "$0.00."

I feel stupid asking this but even looking over the IRS instructions I don't understand.

https://www.irs.gov/instructions/i1099r ... ml#d0e1636

https://www.irs.gov/instructions/i1099r ... ml#d0e1776
The IRR 1099R is a taxable distribution from the pre tax 401k rolled to the designated Roth. As such if there were anything in Box 5 it would just be any after tax contributions in your pre tax 401k. Boxes 10 and 11 would never apply because that 1099R is not a distribution from the designated Roth, it is a distribution from the pre tax 401k. If that 1099R had nothing in box 5, I assume that the entire IRR was taxable and showed in 2a.

The IRR 1099R referred to above will tell you two things:
1) How much of your designated Roth was IRR basis later to become Roth IRA conversion basis after the Roth 401k rollover
2) How much of the IRR was taxable (apparently 100%) and non taxable. That will determine the 10% penalty if you do not hold that IRR for 5 years before withdrawing it. The 5 years runs consecutively in the Roth 401k and in your Roth IRA.

The bigger problem is that the 1099R for the Roth 401k rollover to the Roth IRA will not have these 3 boxes filled either, so you would have to pick up that info separately from an account statement etc. You probably know the first year you contributed to the designated Roth and your tax record 1099R forms will tell you the year and amount of each IRR you did. Therefore, the only other key piece of info is your total amount of elective deferral Roth 401k contributions. You just need the total there, not a yearly breakdown.
Silence Dogood
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Re: Roth IRA basis

Post by Silence Dogood »

Alan S. wrote:The IRR 1099R is a taxable distribution from the pre tax 401k rolled to the designated Roth. As such if there were anything in Box 5 it would just be any after tax contributions in your pre tax 401k. Boxes 10 and 11 would never apply because that 1099R is not a distribution from the designated Roth, it is a distribution from the pre tax 401k. If that 1099R had nothing in box 5, I assume that the entire IRR was taxable and showed in 2a.
That's correct. The entire IRR was taxable and showed in 2a.
Alan S. wrote:The bigger problem is that the 1099R for the Roth 401k rollover to the Roth IRA will not have these 3 boxes filled either, so you would have to pick up that info separately from an account statement etc. You probably know the first year you contributed to the designated Roth and your tax record 1099R forms will tell you the year and amount of each IRR you did. Therefore, the only other key piece of info is your total amount of elective deferral Roth 401k contributions. You just need the total there, not a yearly breakdown.
I believe a designated Roth refers only to an employer-based Roth plan. The first year I contributed to my Roth 401k was last year, 2015. The first year I contributed to a Roth (IRA) was 2010 (I made the contribution in January 2011 but it was for 2010).

I will keep the IRR 1099R forms and keep a record of my total amount of elective deferral Roth 401k contributions.
ljwobker
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Re: Roth IRA basis

Post by ljwobker »

So in my case, I have basis in my Roth IRA that comes primarily from these sources:
1) direct contributions I made around years 2000-2003
2) funds converted via the two year window from a traditional IRA in tax years 2011/2012
3) funds converted from T-IRAs via the "backdoor roth"
4) funds converted via the "mega-backdoor roth"

By going through my (mostly complete) records, I was able to determine that all of my "IRA information worksheets" have tracked ONLY #2 and #3 from above. My basis on lines 6-9 of the worksheet do not include the amounts from my initial direct contributions (#1) nor the mega-backdoor funds from #4. Summarized: the amounts in like 6-9 are way too small.

I have the paperwork to show these contributions and conversions, but at this point I'm confused as to what documentation is authoritative. I assume that if I were to go and withdraw all of the conversion and contribution basis, the IRS would be checking against my filed returns to confirm that it's actually basis and not earnings that I'm taking out. But what information do they have to make this check? I don't actually file the "IRA information worksheet", right? And I can't find any other instance of the value tracked on line 7,9 anywhere in my return.

I ask primarily because I'm trying to get my paperwork caught up so it accurately reflects the contribution/conversion basis... I'm still years away from actually taking any of these funds out, but at the moment the amount I have "tracked" as Roth basis is dramatically lower than it should be, and I'm trying to figure out how to adjust it without running afoul of the rules.
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

Not sure what worksheet you are looking at. Please clarify.

There is no source at this point that is authoritative in tracking basis. The IRS will either take your word for it, or challenge your 8606, but their own recordkeeping is likely no better than most Roth owners. IRA infractions are mostly discovered through tax software at this time.

In any event, your old direct contributions are very easy to integrate. Just add them to your balance of regular contributions. It does not matter when you made them, as long as you have at least one 5498 showing a contribution made over 5 years ago, as that will start your 5 year holding period for qualified distributions at 59.5.

The mega back doors are more complex unless they were totally non taxable. These are tracked along with ordinary Roth conversions, where you log an amount and the taxable/non taxable portions. After 5 years from each mega rollover or conversion, the split between taxable and non taxable no longer matters. But all of them increase your basis in Roth conversions since Form 8606 asks for regular contribution basis and conversion basis. You only get into the 5 year holding issue if you take out more than your total of regular contributions and conversions older than 5 years.

Therefore, the basic answer is simple. Increase your regular contribution basis by the total of the 2000-03 regular contributions, and increase your basis in conversions by the gross total of the mega backdoor rollovers. To refine this, make a note of how much of each mega backdoor was taxable in each year.

If you take a distribution up to the amount of your regular contribution total, your basis in regular contributions is obviously reduced by that amount. Therefore, tracking is much easier if you do not take any distributions before 59.5.
ljwobker
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Re: Roth IRA basis

Post by ljwobker »

Sorry - TurboTax is the only thing I've used to do my taxes so I'm referring to the form that they call "IRA Information Worksheet". It basically just exists to keep track of both value and basis for Traditional and Roth IRAs, with sections for "TIRA Basis Detail" and "TIRA year-end Value detail" and "Roth IRA Contribution and Conversion Balances" - this is where it tracks the conversion and contribution basis for the last 5 years, both taxable and non-taxable.

These values (at least in TurboTax) are computed and carried forward year to year and then modified... it sounds like you're suggesting I should just adjust/override the values here with the information from my records? If this form is never officially filed with the IRS then I'm ultimately keeping my own records here, right?
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

Right. You've got it.

The tax programs are good at maintaining accurate records, but that assumes the correct data exists going into the first year with that program. So if you have used Ttax and filed correctly the last 5 years, the balances should be accurate for that period, but the totals need to be updated to reflect all the activity in prior years.
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BrandonBogle
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Re: Roth IRA basis

Post by BrandonBogle »

Alan S. wrote: The mega back doors are more complex unless they were totally non taxable. These are tracked along with ordinary Roth conversions, where you log an amount and the taxable/non taxable portions. After 5 years from each mega rollover or conversion, the split between taxable and non taxable no longer matters. But all of them increase your basis in Roth conversions since Form 8606 asks for regular contribution basis and conversion basis. You only get into the 5 year holding issue if you take out more than your total of regular contributions and conversions older than 5 years.
I want to make sure I understand this. I have After-Tax/Non-deductible Traditional 401k contributions to I did a rollover/conversion to the Roth IRA for in 2013. I tracked my After-Tax contribution as non-taxable (since I already paid taxes on it going into the 401k) and the earnings as Taxable at time of the conversion. For the rest of my life, I shall count the entire gross amount I moved over as part of my "conversions" balance? And assuming I don't get to withdrawing into my conversion balance (plus all my prior contributions) before 2019, it won't matter whether the part I am withdrawing from my Roth IRA was originally from the After-Tax contribution or the After-Tax earnings since they are all lumped together as a "conversion older than 5 years withdrawal"?

In essence, the only need to keep track of the After-Tax Earnings Converted to Roth IRA is if you withdraw that portion within 5 years, since it would be subject to early distribution penalties?
FrugalZealot
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Re: Roth IRA basis

Post by FrugalZealot »

Alan S. wrote:The question from 2 years ago encompassed two situations:

1) Direct rollover from non Roth 401k to Roth IRA
2) Direct rollover from Roth 401k to Roth IRA

Since these are both direct rollovers and not distributions, the 1099R will not have sufficient data to allow you to track Roth IRA accounting. For a distribution (not a direct rollover), the 1099R will show the basis in Box 5 and the amount of IRRs under 5 years in Box 10.

Most of these will be direct rollovers however, and you will need to get this data separately from the 1099R, perhaps from your final account statement. This lack of transparency will create reporting problems for taxpayers.

1) Direct rollover non Roth 401k to Roth IRA - treat the same as Roth IRA conversion. You will need the year and the breakdown between the taxable and non taxable amount of the Roth rollover. You can lump these with regular Roth conversions if done in the same year.

2) Direct rollover from Roth 401k to Roth IRA - you will need to get your contribution amounts from your plan statement. Treat them the same as regular Roth IRA contributions. If you did IRRs, you will need to know the year and the taxable and non taxable amounts in the same manner as for a Roth IRA conversion. The 5 year holding period for conversions continues from the Roth 401k to the Roth IRA. Any value in excess of your Roth 401k basis is earnings. You do not have to track earnings because earnings in your Roth IRA is any value in excess of the Roth IRA basis plus the basis brought over from the Roth 401k.

In summary, anything rolled into your Roth IRA must then be accounted for using Roth IRA contribution categories, ie regular Roth contributions, taxable conversions and non taxable conversions.

A real mess once your lose control.
I'm in the process of tracking my Roth IRA contributions & conversion basis from years past. I have done multiples of both (1) & (2) above over the years. When I look back at my 1099-Rs for direct rollovers from Roth 401ks to Roth IRAs, in all cases, they reported amounts in Box 5, labeled "Employee / Roth Designated contrib. or insurance premiums."

Am I incorrect to assume that Box 5 value is the basis of my Roth 401k contributions? It seemed clear to me, but since this contradicts what Alan S. indicated above should have happened, I'm confused. Did I just get lucky with the custodians completing Box 5 on the 1099-R?

As far as direct rollovers from regular 401ks to Roth IRAs, I think I'm good because most of the time it was all pre-tax & therefore 100% taxable at conversion & Box 5 indicated $0. The one time I did a conversion when I had after tax contributions in a regular 401k, I did the old two step "isolating the basis" process (which I believe no longer applies) & again there was a value in Box 5 on the 1099-R. Of course, that time, it was an actual distribution with 20% tax withholding because I had to do an indirect rollover due to whole "isolating the basis" process. So, maybe that accounts for Box 5's completion in that case.
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

I was incorrect about Box 5 for direct rollovers from a Roth 401k to a Roth IRA. The 1099R Inst. are a mess, as they do not mention Box 5 in the section for reporting direct rollovers from designated Roth accounts. However, since posting that I noticed that a few pages later in the 1099R Inst. under how to complete Box 2a (yes, 2a!), there is an example which shows that Box 5 is to be completed for direct rollovers from designated Roth to Roth IRA. I expect that this inconsistency confuses some plan administrators as well.

In any event, if your H coded 1099R shows an amount in Box 5, it is probably correct. However, if you did IRRs (roll pre tax 401k to Roth 401k), the Box 5 amount needs to be checked. The IRRs should be included in Box 5 along with your designated Roth elective deferral amounts, since both sources constitute your designated Roth basis, which transfers to your Roth IRA in a rollover.

For direct rollovers from pre tax 401k to your Roth IRA, Box 5 should also be filled if there was any basis included. These rollovers have a 5 year holding period in order to avoid the 10% penalty if under the Roth IRA ordering rules you distribute amounts allocated to the pre tax portion of these rollovers within 5 years (but before 59.5). In your Roth IRA these go in the same bucket as TIRA to Roth IRA conversions. You need to know which year these were done since the oldest years come out first, and within a given year, the pre tax money comes out first.

Sorry for that misinformation from a couple years back about Box 5 and 10.
appleshampooid
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Re: Roth IRA basis

Post by appleshampooid »

Alan S. wrote: Thu Aug 10, 2017 11:19 pm I was incorrect about Box 5 for direct rollovers from a Roth 401k to a Roth IRA. The 1099R Inst. are a mess, as they do not mention Box 5 in the section for reporting direct rollovers from designated Roth accounts. However, since posting that I noticed that a few pages later in the 1099R Inst. under how to complete Box 2a (yes, 2a!), there is an example which shows that Box 5 is to be completed for direct rollovers from designated Roth to Roth IRA. I expect that this inconsistency confuses some plan administrators as well.

In any event, if your H coded 1099R shows an amount in Box 5, it is probably correct. However, if you did IRRs (roll pre tax 401k to Roth 401k), the Box 5 amount needs to be checked. The IRRs should be included in Box 5 along with your designated Roth elective deferral amounts, since both sources constitute your designated Roth basis, which transfers to your Roth IRA in a rollover.

For direct rollovers from pre tax 401k to your Roth IRA, Box 5 should also be filled if there was any basis included. These rollovers have a 5 year holding period in order to avoid the 10% penalty if under the Roth IRA ordering rules you distribute amounts allocated to the pre tax portion of these rollovers within 5 years (but before 59.5). In your Roth IRA these go in the same bucket as TIRA to Roth IRA conversions. You need to know which year these were done since the oldest years come out first, and within a given year, the pre tax money comes out first.

Sorry for that misinformation from a couple years back about Box 5 and 10.
Thanks Alan S for all your posts in this thread. They have helped me sort out my situation a bit, as I do the needful (like many others in this thread) and start keeping track of Roth contribution basis, including stuff in the past.

Riddle me this...I had a Roth 401(k) rollover into a Roth IRA in 2012. The Roth 401(k) only took contributions in one tax year (2012), which was the same year I executed the rollover. On my W2 from that employer, the amount in box 12 coded with AA ("Designated Roth contribution under a 401(k) plan") is $2,961.80. But on the H-coded 1099-R from the firm that disbursed the rollover, the amount in Box 5 ("Employee Contributions/Designated Roth Contributions or Insurance Premiums") is $2,914.12. 🤔

The difference is less than $50, so not a big deal, but confusing to me as the totals should be the same.
"If you aren't unhappy with part of your portfolio, you aren't diversified enough." -rudeboy
Alan S.
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Re: Roth IRA basis

Post by Alan S. »

Yes, these two boxes should be the same. I assume that neither of these forms was corrected later, for example due to an excess contribution.

Check Box 1 of the 1099R. If that figure is the same as Box 5, then the likely error is that the 1099R issuer did not know that Box 5 will exceed Box 1 if there was an investment loss prior to the direct rollover.

For purposes of your Roth IRA basis, you may want to keep a copy of the W-2 to document your basis in regular Roth IRA contributions if you feel the W-2 is the more accurate figure.
appleshampooid
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Re: Roth IRA basis

Post by appleshampooid »

Alan S. wrote: Sun Jul 15, 2018 11:34 am Yes, these two boxes should be the same. I assume that neither of these forms was corrected later, for example due to an excess contribution.

Check Box 1 of the 1099R. If that figure is the same as Box 5, then the likely error is that the 1099R issuer did not know that Box 5 will exceed Box 1 if there was an investment loss prior to the direct rollover.

For purposes of your Roth IRA basis, you may want to keep a copy of the W-2 to document your basis in regular Roth IRA contributions if you feel the W-2 is the more accurate figure.
Neither form was corrected later.

Box 1 of the 1099-R is not the same as box 5, it is a bit larger as there was a small gain in the account prior to the rollover.

I will just use the smaller 1099-R figure for basis to be conservative. I probably will actually take some early distribution of contributions later in life, as my wife and I are planning on retiring early, and those funds will be part of the cash flow plan (in addition to taxable investments).

Hopefully the fifty bucks won't be a make or break amount for us in that situation, heh.
"If you aren't unhappy with part of your portfolio, you aren't diversified enough." -rudeboy
ivk5
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Re: Roth IRA basis

Post by ivk5 »

Is it possible the difference was an administrative free charged by the custodian prior to the rollover?
appleshampooid
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Joined: Mon Feb 12, 2018 3:26 pm

Re: Roth IRA basis

Post by appleshampooid »

ivk5 wrote: Sun Jul 15, 2018 2:01 pm Is it possible the difference was an administrative free charged by the custodian prior to the rollover?
Ooh, I think you're right! I remember being pissed at Putnam because there was a $75 fee to close the account and roll it over. Criminal! The ~$50 would make sense as there were also pre-tax contributions in the account, so the fee was probably prorated based on the balance of each.
"If you aren't unhappy with part of your portfolio, you aren't diversified enough." -rudeboy
Alan S.
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Location: Prescott, AZ

Re: Roth IRA basis

Post by Alan S. »

A fee should reduce Box 1, but not Box 5 as it would not reduce or change the amount you contributed.


If the plan did reduce Box 5 as well as 1 which cannot be proven without a distribution statement, that would explain the higher amount on the W-2, Box 12.
appleshampooid
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Joined: Mon Feb 12, 2018 3:26 pm

Re: Roth IRA basis

Post by appleshampooid »

Alan S. wrote: Sun Jul 15, 2018 4:36 pm A fee should reduce Box 1, but not Box 5 as it would not reduce or change the amount you contributed.


If the plan did reduce Box 5 as well as 1 which cannot be proven without a distribution statement, that would explain the higher amount on the W-2, Box 12.
Yeah I think they made a mistake. Will see if I have any other documentation from the rollover.
"If you aren't unhappy with part of your portfolio, you aren't diversified enough." -rudeboy
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