Thursday, May 2, 2024

Keeping Track of Your Roth Conversion: Key Tax Forms

How to Complete IRS Form 8606 (for a Backdoor Roth IRA; YouTube link)


There are two key tax reports you'll want to receive for a Roth conversion:

  1. Form 1099-R from your custodian (the financial institution holding your traditional IRA):

    • This form reports the total distribution amount from your traditional IRA.
    • In the case of a Roth conversion, the distribution amount will represent the fair market value of your entire traditional IRA account (including contributions and earnings) on the conversion date.
    • Box 7 of the 1099-R will likely have a code indicating a rollover or conversion (typically code "R").
  2. Form 8606 (titled "Nondeductible IRAs"):

    • This form, filed with your tax return, tells the IRS how much of your Roth conversion was from non-deductible contributions you previously made to your traditional IRA.
    • It's important to report this correctly, as only the portion converted from earnings in your traditional IRA is taxable. This form helps determine the taxable amount of the conversion.

Here's a breakdown of their roles:

  • Form 1099-R: Provides the total distribution from your traditional IRA, which is the basis for the conversion.
  • Form 8606: Clarifies how much of the conversion represents non-deductible contributions (not taxable) vs earnings (taxable).

It's important to note:

  • You will typically receive these forms from your custodian by mail in January or February of the following year.
  • You can usually also access them electronically through your custodian's online portal.

If you have a complex situation or questions about how to fill out Form 8606, consulting with a tax professional is recommended.


Acknowledgement

  • The above content was generated by Gemini.

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