Form 5498 or 1099R (IRA to Roth Conversion)

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susa
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Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Sun Nov 12, 2017 10:47 am

Does this Forbes article present a problem in the way Vanguard times the sending of the needed forms to IRS ?

Does the sending out of Vanguard forms from IRA to Roth conversions delay your IRS return(s), that is, the "late sending" ?

Or, do you simply use your own numbers from the Confirmation email(s) to calculate the sum of what will eventually appear of 1099R ?
Contributions to IRAs are reported on Form 5498. Sadly, these cannot be generated until after the April 15th tax filing deadline, because you have until the April 15th filing deadline to contribute to your IRAs for the prior year. As a result, custodians have until May 31st to send Form 5498.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by jebmke » Sun Nov 12, 2017 10:52 am

Many people file their returns with an IRA (or HSA) contribution without supporting forms.

As for conversions (or other distributions), custodians will send you a 1099-R, usually by the end of January which is plenty of time to file a tax return.
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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Alan S. » Sun Nov 12, 2017 5:17 pm

The 1099R is not delayed, only the 5498. And all custodians file their 5498 in May, not just Vanguard.

That gives them about a month to determine the IRA regular contributions up to the tax deadline, usually around 4/17.

You report your contributions as usual based on what you have contributed for the tax year, but whenever you make a regular contribution for a prior year always check your IRA statement to make sure the contribution was assigned to the correct year. An error can often be corrected if caught right away. Don't wait until your get your 5498 to check your IRA contribution was made for the correct year.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by DrGoogle2017 » Sun Nov 12, 2017 5:28 pm

I usually check online, Vanguard tells me how much I converted or contributed per year. The statement also has that information.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by abuss368 » Sun Nov 12, 2017 5:34 pm

IRS Form 5498 is typically provided by May 31st.

I also review our year end investment portfolio statements to make sure any contributions are reported in the correct year.
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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Mon Nov 13, 2017 6:15 am

Alan S. wrote: The 1099R is not delayed, only the 5498. And all custodians file their 5498 in May, not just Vanguard.

You report your contributions as usual based on what you have contributed for the tax year
We make no contributions, only conversions as we have no income.... but the principle is the same with conversions, Ok.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by jebmke » Mon Nov 13, 2017 8:07 am

susa wrote:
Mon Nov 13, 2017 6:15 am
Alan S. wrote: The 1099R is not delayed, only the 5498. And all custodians file their 5498 in May, not just Vanguard.

You report your contributions as usual based on what you have contributed for the tax year
We make no contributions, only conversions as we have no income.... but the principle is the same with conversions, Ok.
A conversion is reported on the 1099-R the same as a regular distribution. From the IRS' perspective, you received the money. The deposit into the ROTH documents the in-bound side of the conversion. From a tax reporting perspective, when you file the taxes in the year you do the conversion, the effect is the same as if you took the money and bought a boat.

The 5498 establishes the fact that the money ended up in the ROTH. This sets up this up to be properly reported in future years when you take a distribution from the ROTH. The custodian of the ROTH IRA, which may not even be the same one as the Traditional IRA, will report the distribution as a ROTH distribution.
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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Mon Nov 13, 2017 8:19 am

jebmke wrote:
Mon Nov 13, 2017 8:07 am
The 5498 establishes the fact that the money ended up in the ROTH. This sets up this up to be properly reported in future years when you take a distribution from the ROTH. The custodian of the ROTH IRA, which may not even be the same one as the Traditional IRA, will report the distribution as a ROTH distribution.
I understand this, but I think there is some kind of additional IRS matching going on with the 5498 numbers after the Roth conversion.

I am thinking of all of the backdoor Roth CP2000 notices we saw here where people had entered the 1099-R information correctly, showing a zero taxable amount on the distribution, but failed to fill out Lines 16-18 on the 8606.

In those cases it seemed as if they had correctly reported a non-taxable distribution, but the IRS went back and matched the 5498 to the tax return, saw that a conversion wasn't reported on the return, then demanded tax on the full distribution. I'm not sure of the logic of that but it seems that's what happened.

Oops, I used logic and IRS in the same paragraph. Sorry. :D

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by jebmke » Mon Nov 13, 2017 8:23 am

Chip wrote:
Mon Nov 13, 2017 8:19 am
In those cases it seemed as if they had correctly reported a non-taxable distribution
But generally a ROTH conversion isn't a non-taxable distribution. You'd have to have basis to have an amount that wasn't taxable. This would require an 8606 but my experience is that if you stare long enough at the obscure Q&A in most retail tax packages you can figure out how to answer their mangled language correctly and trigger the 8606. I do recall that there was some question as to whether Turbotax was defective but I don't recall what the outcome was. [as an aside, I am often unsympathetic inasmuch as I think people need to know how the tax rules work and not depend on computer programmers to think for them -- but that is just me]
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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Mon Nov 13, 2017 8:29 am

jebmke wrote:
Mon Nov 13, 2017 8:23 am
But generally a ROTH conversion isn't a non-taxable distribution. You'd have to have basis to have an amount that wasn't taxable. This would require an 8606 but my experience is that if you stare long enough at the obscure Q&A in most retail tax packages you can figure out how to answer their mangled language correctly and trigger the 8606. I do recall that there was some question as to whether Turbotax was defective but I don't recall what the outcome was. [as an aside, I am often unsympathetic inasmuch as I think people need to know how the tax rules work and not depend on computer programmers to think for them -- but that is just me]
Right. But in this case I was talking about a backdoor Roth "contribution", where 100% of the conversion was basis. Several of the people with the CP2000s had filed an 8606 with Lines 13-15 showing that the distribution wasn't taxable, but left 16-18 (showing that it was a Roth conversion) blank.

I share your unsympathy. :D

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by overthought » Mon Nov 13, 2017 8:37 am

Chip wrote:
Mon Nov 13, 2017 8:19 am
I am thinking of all of the backdoor Roth CP2000 notices we saw here where people had entered the 1099-R information correctly, showing a zero taxable amount on the distribution, but failed to fill out Lines 16-18 on the 8606.

In those cases it seemed as if they had correctly reported a non-taxable distribution, but the IRS went back and matched the 5498 to the tax return, saw that a conversion wasn't reported on the return, then demanded tax on the full distribution. I'm not sure of the logic of that but it seems that's what happened.

Oops, I used logic and IRS in the same paragraph. Sorry. :D
Maybe I'm missing something: If somebody does a Roth conversion but fails to report it with F8606, why would they be surprised to have the IRS to come knocking later on? I'm not sure where the 5498 even comes in, unless people are relying on the IRS to cross-reference that form to infer what the F8606 should have said (which would be nice, but seems unlikely)?

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by jebmke » Mon Nov 13, 2017 8:49 am

overthought wrote:
Mon Nov 13, 2017 8:37 am
Maybe I'm missing something: If somebody does a Roth conversion but fails to report it with F8606, why would they be surprised to have the IRS to come knocking later on?
Unfortunately there are some who believe that the custodians keep track of all this. Even some of my TaxAide buddies are confused about the 8606 (that is a training issue).
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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Mon Nov 13, 2017 9:06 am

overthought wrote:
Mon Nov 13, 2017 8:37 am
Maybe I'm missing something: If somebody does a Roth conversion but fails to report it with F8606, why would they be surprised to have the IRS to come knocking later on? I'm not sure where the 5498 even comes in, unless people are relying on the IRS to cross-reference that form to infer what the F8606 should have said (which would be nice, but seems unlikely)?
You're not missing anything. What we saw here with several of the CP2000s was that people thought they were reporting the conversion correctly, but weren't. They had an 8606 in their return which documented that their distribution wasn't taxable, but that 8606 didn't show that the distribution was a Roth conversion (they left Lines 16-18 blank). They didn't understand that Lines 13-15 AND Lines 16-18 on the 8606 had to be filled in to properly document the conversion.

I was able to recreate the above error by answering one fairly ambiguous question in TurboTax's interview mode incorrectly.

I am speculating, but I think the IRS matches the "Roth conversion amount" from the 5498 with the Line 16 amount from the 8606. If nothing is on Line 16 a CP2000 gets generated. If there is an entry on Line 16 they may go further with matching recharacterizations on other 5498s and possibly even manually looking at rollover explanation attachments. I'm just guessing though.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by overthought » Mon Nov 13, 2017 10:07 am

Chip wrote:
Mon Nov 13, 2017 9:06 am
overthought wrote:
Mon Nov 13, 2017 8:37 am
Maybe I'm missing something: If somebody does a Roth conversion but fails to report it with F8606, why would they be surprised to have the IRS to come knocking later on? I'm not sure where the 5498 even comes in, unless people are relying on the IRS to cross-reference that form to infer what the F8606 should have said (which would be nice, but seems unlikely)?
You're not missing anything. What we saw here with several of the CP2000s was that people thought they were reporting the conversion correctly, but weren't. They had an 8606 in their return which documented that their distribution wasn't taxable, but that 8606 didn't show that the distribution was a Roth conversion (they left Lines 16-18 blank). They didn't understand that Lines 13-15 AND Lines 16-18 on the 8606 had to be filled in to properly document the conversion.

I was able to recreate the above error by answering one fairly ambiguous question in TurboTax's interview mode incorrectly.

I am speculating, but I think the IRS matches the "Roth conversion amount" from the 5498 with the Line 16 amount from the 8606. If nothing is on Line 16 a CP2000 gets generated. If there is an entry on Line 16 they may go further with matching recharacterizations on other 5498s and possibly even manually looking at rollover explanation attachments. I'm just guessing though.
OK, that makes more sense.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Mon Nov 13, 2017 11:26 am

Chip wrote:.. people with the CP2000s had filed an 8606 with Lines 13-15 showing that the distribution wasn't taxable, but left 16-18 (showing that it was a Roth conversion) blank.
So I surmise that in Jan-Feb 2018 by whichever method (pencil,ink,software) of doing our return(s), we must include & submit a Form 8606 for our 2017 return which consists solely on a single transaction "IRA to Roth conversion" and that as our only "income" for the year.

Thanks for the heads up !

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by MarkNYC » Mon Nov 13, 2017 2:56 pm

I don't believe the information on Form 5498 is included in the IRS tax document matching program that generates the CP2000 notice. If it was included, then the IRS could easily detect RMDs that are omitted, and excess Roth contributions due to AGI being too high. I have never seen the IRS catch either of these two frequently-committed taxpayer errors.

Whenever a taxpayer receives an IRS notice related to a Roth conversion that is not fully taxable, I believe it's a result of the IRS matching the 1099-R with either an incorrect amount on 1040 line 15a/b, or an absent or incorrectly completed Form 8606, or both.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Mon Nov 13, 2017 3:07 pm

MarkNYC wrote:
Mon Nov 13, 2017 2:56 pm
I don't believe the information on Form 5498 is included in the IRS tax document matching program that generates the CP2000 notice. If it was included, then the IRS could easily detect RMDs that are omitted, and excess Roth contributions due to AGI being too high. I have never seen the IRS catch either of these two frequently-committed taxpayer errors.

Whenever a taxpayer receives an IRS notice related to a Roth conversion that is not fully taxable, I believe it's a result of the IRS matching the 1099-R with either an incorrect amount on 1040 line 15a/b, or an absent or incorrectly completed Form 8606, or both.
That makes a lot of sense. But we had several posters here with CP2000s who had done "backdoor Roth contributions" who claimed they had a 1099-R showing a $5500 distribution, a filled out 8606 with Line 13 (nontaxable portion of all distributions) of $5500, plus Line 15 (taxable amount) of zero. Nothing on Lines 16-18. 1040 showed $5500 on 15a, zero on 15b. It's that fact set that makes me think somehow 5498 matching is occurring.

Can you think of another trigger for those CP2000s, given the info above?

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by MarkNYC » Mon Nov 13, 2017 3:15 pm

Chip wrote:
Mon Nov 13, 2017 3:07 pm
MarkNYC wrote:
Mon Nov 13, 2017 2:56 pm
I don't believe the information on Form 5498 is included in the IRS tax document matching program that generates the CP2000 notice. If it was included, then the IRS could easily detect RMDs that are omitted, and excess Roth contributions due to AGI being too high. I have never seen the IRS catch either of these two frequently-committed taxpayer errors.

Whenever a taxpayer receives an IRS notice related to a Roth conversion that is not fully taxable, I believe it's a result of the IRS matching the 1099-R with either an incorrect amount on 1040 line 15a/b, or an absent or incorrectly completed Form 8606, or both.
That makes a lot of sense. But we had several posters here with CP2000s who had done "backdoor Roth contributions" who claimed they had a 1099-R showing a $5500 distribution, a filled out 8606 with Line 13 (nontaxable portion of all distributions) of $5500, plus Line 15 (taxable amount) of zero. Nothing on Lines 16-18. 1040 showed $5500 on 15a, zero on 15b. It's that fact set that makes me think somehow 5498 matching is occurring.

Can you think of another trigger for those CP2000s, given the info above?
Yes. When you do a Roth conversion, you MUST complete lines 16-18 of Form 8606 for the form to be complete and accurate. (unless it was fully recharacterized) Line 18 shows the "taxable amount" of the conversion. If left blank, the IRS will assume the conversion is fully taxable.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Tue Nov 14, 2017 4:13 am

MarkNYC wrote:
Mon Nov 13, 2017 3:15 pm
Yes. When you do a Roth conversion, you MUST complete lines 16-18 of Form 8606 for the form to be complete and accurate. (unless it was fully recharacterized) Line 18 shows the "taxable amount" of the conversion. If left blank, the IRS will assume the conversion is fully taxable.
Thanks.

I don't see how the IRS will even know that a Roth conversion took place (vs. a simple distribution) if Lines 16-18 of the 8606 are left blank, but 13-15 are filled in. The 1099-R will have a Box 7 code of either a 2 or a 7, depending on taxpayer age, so no help there. I can't see any other piece of information on the documents or the return that will indicate a conversion took place (vs. a distribution). What am I missing?

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Tue Nov 14, 2017 8:52 am

I confess to reading just now the Form 8606 Instructions (2016 version online today) and NOT fully understanding them.

On one hand several directions are given but exceptions nullify them with directions to leave boxes empty.

As a rough oversimplification, as we have otherwise no income, only that which results from IRA to Roth conversions and we converted between two accounts at Vanguard this year 20k, we plan to simply enter 20k into Line 15 (taxable amount) and 20k into Line 18 (taxable amount).

Since we will not have to pay income tax on 20k due to standard deductions and two personal exemptions, perhaps this strategy will elude the dreaded CP2000 letter from IRS.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by MarkNYC » Tue Nov 14, 2017 9:05 am

Chip wrote:
Tue Nov 14, 2017 4:13 am
MarkNYC wrote:
Mon Nov 13, 2017 3:15 pm
Yes. When you do a Roth conversion, you MUST complete lines 16-18 of Form 8606 for the form to be complete and accurate. (unless it was fully recharacterized) Line 18 shows the "taxable amount" of the conversion. If left blank, the IRS will assume the conversion is fully taxable.
Thanks.

I don't see how the IRS will even know that a Roth conversion took place (vs. a simple distribution) if Lines 16-18 of the 8606 are left blank, but 13-15 are filled in. The 1099-R will have a Box 7 code of either a 2 or a 7, depending on taxpayer age, so no help there. I can't see any other piece of information on the documents or the return that will indicate a conversion took place (vs. a distribution). What am I missing?
On Part 1 of Form 8606, lines 8 and 11 will indicate that a conversion took place, in which case lines 16-18 must be completed.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Tue Nov 14, 2017 9:06 am

susa wrote:
Tue Nov 14, 2017 8:52 am
I confess to reading just now the Form 8606 Instructions (2016 version online today) and NOT fully understanding them.

On one hand several directions are given but exceptions nullify them with directions to leave boxes empty.

As a rough oversimplification, as we have otherwise no income, only that which results from IRA to Roth conversions and we converted between two accounts at Vanguard this year 20k, we plan to simply enter 20k into Line 15 (taxable amount) and 20k into Line 18 (taxable amount).

Since we will not have to pay income tax on 20k due to standard deductions and two personal exemptions, perhaps this strategy will elude the dreaded CP2000 letter from IRS.
I apologize for introducing confusion into this thread by delving into the minutiae of Form 8606. After spending quite a bit of time here trying to help people who received those CP2000s, I am perhaps "overly interested" in the subject.

If you never made non-deductible contributions to your tIRA (which would have required filing 8606 in that tax year) your tax return and Form 8606 are very simple. The only lines you have to fill in on the 8606 are Line 16 and Line 18. Both of them would be 20,000 in your example. That 20,000 transfers to Form 1040, Line 15b.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Tue Nov 14, 2017 9:26 am

MarkNYC wrote:
Tue Nov 14, 2017 9:05 am
On Part 1 of Form 8606, lines 8 and 11 will indicate that a conversion took place, in which case lines 16-18 must be completed.
I appreciate your willingness to stick with this.

TurboTax often doesn't even fill out Lines 6-12 of 8606. It instead uses the Taxable IRA Distribution worksheet in Pub 590-B (Worksheet 1.1), leaving 6-12 blank and putting the basis of the distribution, calculated on Wkst 1.1, on Line 13.

I want to continue to clarify that the situations I'm talking about are where the distribution was correctly entered in the tax software, but it was incorrectly identified as "not converted". So to me it should have appeared as a simple non-taxable distribution (which is what appeared on the 1040), but instead the CP2000 appeared with a demand for taxes on a Roth conversion.

So I'm still stuck on how the IRS flagged this.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Tue Nov 14, 2017 9:59 am

Chip wrote: The only lines you have to fill in on the 8606 are Line 16 and Line 18.
That sounds very easy, thank you.

What about lines 8 and 11?
MarkNYC wrote:...lines 8 and 11 will indicate that a conversion took place..

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Tue Nov 14, 2017 10:06 am

susa wrote:
Tue Nov 14, 2017 9:59 am
What about lines 8 and 11?
MarkNYC wrote:...lines 8 and 11 will indicate that a conversion took place..
Lines 8 and 11 only come into play if you have made non-deductible contributions. And often not even then if the worksheet in Pub 590-B is used by your tax software instead of filling out Lines 6-12.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by MarkNYC » Tue Nov 14, 2017 4:01 pm

Chip wrote:
Tue Nov 14, 2017 4:13 am
MarkNYC wrote:
Mon Nov 13, 2017 3:15 pm
Yes. When you do a Roth conversion, you MUST complete lines 16-18 of Form 8606 for the form to be complete and accurate. (unless it was fully recharacterized) Line 18 shows the "taxable amount" of the conversion. If left blank, the IRS will assume the conversion is fully taxable.
Thanks.

I don't see how the IRS will even know that a Roth conversion took place (vs. a simple distribution) if Lines 16-18 of the 8606 are left blank, but 13-15 are filled in. The 1099-R will have a Box 7 code of either a 2 or a 7, depending on taxpayer age, so no help there. I can't see any other piece of information on the documents or the return that will indicate a conversion took place (vs. a distribution). What am I missing?
Code 2 on the 1099-R will almost always be an indication of a Roth conversion. Other than conversions prior to 59 1/2, Code 2 is only used (1) to show a distribution forced by an IRS levy, or (2) to show a distribution that is part of a SEPP (series of substantially equal periodic payments). Those two situations are rare compared to Roth conversions, and neither one is likely to produce a distribution of $5,500 that is fully nontaxable.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Tue Nov 14, 2017 5:14 pm

MarkNYC wrote:
Tue Nov 14, 2017 4:01 pm
Code 2 on the 1099-R will almost always be an indication of a Roth conversion. Other than conversions prior to 59 1/2, Code 2 is only used (1) to show a distribution forced by an IRS levy, or (2) to show a distribution that is part of a SEPP (series of substantially equal periodic payments). Those two situations are rare compared to Roth conversions, and neither one is likely to produce a distribution of $5,500 that is fully nontaxable.
Right. I guess that could account for the CP2000s we've seen. I don't recall questioning anyone about whether their Box 7 code was a 2 or a 7. Are you suggesting that a Box 7 code of 7, with the other facts as above, would likely have gone unnoticed by the IRS?

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by MarkNYC » Tue Nov 14, 2017 5:40 pm

Chip wrote:
Tue Nov 14, 2017 5:14 pm
MarkNYC wrote:
Tue Nov 14, 2017 4:01 pm
Code 2 on the 1099-R will almost always be an indication of a Roth conversion. Other than conversions prior to 59 1/2, Code 2 is only used (1) to show a distribution forced by an IRS levy, or (2) to show a distribution that is part of a SEPP (series of substantially equal periodic payments). Those two situations are rare compared to Roth conversions, and neither one is likely to produce a distribution of $5,500 that is fully nontaxable.
Right. I guess that could account for the CP2000s we've seen. I don't recall questioning anyone about whether their Box 7 code was a 2 or a 7. Are you suggesting that a Box 7 code of 7, with the other facts as above, would likely have gone unnoticed by the IRS?
Perhaps Code 7 would avoid a notice. The point is, if a taxpayer does a backdoor Roth, it's a good idea to take the time to prepare the Form 8606 accurately, by completing lines 1-15 AND 16-18, rather than taking a shortcut by leaving the conversion lines blank, figuring the IRS may not catch the error and if the tax result is the same why should the IRS care if the form is not correct.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Chip » Wed Nov 15, 2017 6:19 am

MarkNYC wrote:
Tue Nov 14, 2017 5:40 pm
Perhaps Code 7 would avoid a notice. The point is, if a taxpayer does a backdoor Roth, it's a good idea to take the time to prepare the Form 8606 accurately, by completing lines 1-15 AND 16-18, rather than taking a shortcut by leaving the conversion lines blank, figuring the IRS may not catch the error and if the tax result is the same why should the IRS care if the form is not correct.
I agree people should fill out their tax forms correctly. :D

Many of the people we saw here with CP2000s weren't trying to take a shortcut; they either didn't understand how to fill out 8606, answered some interview question in their tax software incorrectly, or both. I'm just trying to understand the trigger for the CP2000, given that the mistakes they made created what looked like a non-taxable distribution without a conversion. I guess Box 7 Code 2 could be it, but I don't see another trigger given the fact pattern I described above.

Thanks again for your help.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by retiredjg » Wed Nov 15, 2017 8:09 am

susa wrote:
Tue Nov 14, 2017 8:52 am
As a rough oversimplification, as we have otherwise no income, only that which results from IRA to Roth conversions and we converted between two accounts at Vanguard this year 20k, we plan to simply enter 20k into Line 15 (taxable amount) and 20k into Line 18 (taxable amount).
You mention 2 accounts. If you converted some from one person's account and some from another person's account, it will require two Forms 8606 - one for each person.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by Alan S. » Wed Nov 15, 2017 1:58 pm

Just curious - the IRS antiquated computer systems do whatever matching is done and it takes several months. If a mismatch is identified, is the CP 2000 automated or does an IRS staffer review the mismatches before the CP 2000 is mailed? Or perhaps some of each?

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by MarkNYC » Wed Nov 15, 2017 3:33 pm

Alan S. wrote:
Wed Nov 15, 2017 1:58 pm
Just curious - the IRS antiquated computer systems do whatever matching is done and it takes several months. If a mismatch is identified, is the CP 2000 automated or does an IRS staffer review the mismatches before the CP 2000 is mailed? Or perhaps some of each?
Alan,

According to the Internal Revenue Manual, when the IRS Automated Underreporter Program (AUR) identifies computer mismatches, cases are selected for inventory "in a manner determined to provide overall compliance coverage." The cases selected undergo a review by a tax examiner before the notice is generated, in order to verify whether the mismatch is located somewhere else on the tax return. In some cases, a CP2501 notice will be sent requesting further information, prior to the issuance of the CP2000 notice which actually proposes a change in tax. So not all mismatches result in a CP2000 being sent.

Given that some 4 million CP2000 notices are sent annually and the IRS has staffing and budget limitations, I'm not so sure how extensive the review process actually is.

The computer matching process usually begins 7 months after the filing due date, and it's usually 12 months or more after filing that taxpayers start receiving the CP2000 notices. The IRS has been trying to shorten this delay.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by TedSwippet » Thu Nov 16, 2017 5:30 am

Chip wrote:
Tue Nov 14, 2017 9:06 am
If you never made non-deductible contributions to your tIRA (which would have required filing 8606 in that tax year) your tax return and Form 8606 are very simple. The only lines you have to fill in on the 8606 are Line 16 and Line 18. Both of them would be 20,000 in your example. That 20,000 transfers to Form 1040, Line 15b.
While we are dissecting the hydra-like morass that is form 8606 instructions... could I ask what the received wisdom is on converting a portion of a pure pre-tax 401k into a Roth?

The form 8606 instructions are voluminous regarding IRAs and never mention 401ks, so superficially it seems like a 401k to Roth conversion does not require a form 8606. But in their quest to never be clear or unambiguous on anything, the IRS then mutters on about 'Deemed IRAs'.

My sense is that a vanilla 401k such as mine is not a 'deemed IRA', but how does one tell for sure?

And am I right in concluding that a Roth conversion from an entirely ordinary 401k would not require a simple form 8606 as noted by Chip above?

Thanks.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Thu Nov 16, 2017 7:54 am

retiredjg wrote:
susa wrote: .. we converted between two accounts at Vanguard ...
You mention 2 accounts. If you converted some from one person's account and some from another person's account, it will require two Forms 8606 - one for each person.
Sorry, should have been more precise. Literally we had one(1) Source account of the type: Simple IRA and one destination (2) account of the type: Roth IRA. Funds were moved from 1 to 2 in a single transaction "between two accounts".

Thank you!

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Thu Nov 16, 2017 8:01 am

TedSwippet wrote: My sense is that a vanilla 401k such as mine is not a 'deemed IRA', but how does one tell for sure?
My directions from the custodian(s) of our 401k and IRA accounts are to 1st move 401k into a Simple IRA (setup separately from any existing IRA accounts), then move funds from the newly minted IRA to a Roth IRA (again, setup separately). This way there is clear and unambiguous demarcation of source and destination of funds.
Last edited by susa on Thu Nov 16, 2017 8:15 am, edited 1 time in total.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by retiredjg » Thu Nov 16, 2017 8:03 am

TedSwippet wrote:
Thu Nov 16, 2017 5:30 am
Chip wrote:
Tue Nov 14, 2017 9:06 am
If you never made non-deductible contributions to your tIRA (which would have required filing 8606 in that tax year) your tax return and Form 8606 are very simple. The only lines you have to fill in on the 8606 are Line 16 and Line 18. Both of them would be 20,000 in your example. That 20,000 transfers to Form 1040, Line 15b.
While we are dissecting the hydra-like morass that is form 8606 instructions... could I ask what the received wisdom is on converting a portion of a pure pre-tax 401k into a Roth?

The form 8606 instructions are voluminous regarding IRAs and never mention 401ks, so superficially it seems like a 401k to Roth conversion does not require a form 8606. But in their quest to never be clear or unambiguous on anything, the IRS then mutters on about 'Deemed IRAs'.

My sense is that a vanilla 401k such as mine is not a 'deemed IRA', but how does one tell for sure?

And am I right in concluding that a Roth conversion from an entirely ordinary 401k would not require a simple form 8606 as noted by Chip above?

Thanks.
Your vanilla 401k is not a deemed IRA.

Yes, you can roll from 401k to Roth IRA without using the Form 8606 - but only if you go directly from 401k to Roth IRA. If you go "through" tIRA, Form 8606 gets involved.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by retiredjg » Thu Nov 16, 2017 8:05 am

susa wrote:
Thu Nov 16, 2017 7:54 am
Sorry, should have been more precise. Literally we had one(1) Source account of the type: Simple IRA and one destination (2) account of the type: Roth IRA. Funds were moved from 1 to 2 in a single transaction "between two accounts".
I thought that was probably what you meant, but the other interpretation also seemed possible - just making sure.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by retiredjg » Thu Nov 16, 2017 8:15 am

susa wrote:
Thu Nov 16, 2017 8:01 am
TedSwippet wrote: My sense is that a vanilla 401k such as mine is not a 'deemed IRA', but how does one tell for sure?
My directions from the custodian(s) of our 401k and IRA accounts are to 1st move 401k into a Simple IRA (setup separately from any existing IRA accounts), then move funds from the newly minted IRA to a Roth IRA (again, setup separately). This way there is clear and unambiguous demarcation of aource and destination of funds.
There is something I don't understand about this.

I don't see any reason to move money into SIMPLE IRA.

And if that person has any other traditional IRA and if there is any basis (already taxed money - usually non-deductible contributions) in any of that person's IRAs everything will be pro-rated.

The money could have simply been rolled/converted from the 401k directly to Roth IRA. Why do they suggest inserting the SIMPLE IRA?

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by susa » Thu Nov 16, 2017 8:28 am

retiredjg wrote: And if that person has any other traditional IRA and if there is any basis (already taxed money - usually non-deductible contributions)
Not applicable in our case.
retiredjg wrote: The money could have simply been rolled/converted from the 401k directly to Roth IRA. Why do they suggest inserting the SIMPLE IRA?
We tried that once. Perhaps due to the institution and the restrictions of the employer and custodian(s), the response (at the time of the last conversation) was "...you must move ALL of your 401k accounts, from each sub-account....into an IRA with our bank or another custodian of your selection...of the type IRA.."

We took that language to imply that for bookkeeping purpose it would be easies to just setup a new IRA with Vanguard and let them handle the movement of funds. Upon further review it could be that the destination custodian would "receive the funds into a Roth IRA". In our case, since we plan on never paying taxes while alive, we must pass funds at a trickle rate with 0% income tax so the path is always IRA to Roth IRA.

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by retiredjg » Thu Nov 16, 2017 8:41 am

Since you have no other IRA with basis, it's should all be fine. :D

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Re: Form 5498 or 1099R (IRA to Roth Conversion)

Post by TedSwippet » Thu Nov 16, 2017 8:58 am

retiredjg wrote:
Thu Nov 16, 2017 8:03 am
Your vanilla 401k is not a deemed IRA. ... Yes, you can roll from 401k to Roth IRA without using the Form 8606 - but only if you go directly from 401k to Roth IRA. If you go "through" tIRA, Form 8606 gets involved.
Understood. Thank you for the clarification.

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