ROTH IRA CONVERSION

[Shirley79]

FORM 5498 IRA CONTRIBUTION INFORMATION PAGE SHOWS A LARGE AMOUNT ON LINE 3

BACK OF 5498 SAYS TO ENTER THAT NUMBER ON 8606 TO FIGURE TAXABLE AMOUNT

THE AMOUNT ON LINE 3 (ROTH IRA COVERSION AMOUNT) IS NOT ON HIS TRADITIONAL IRA

1099'S.   

DOES LINE 3 NEED TO BE ENTERED SOMEWHERE, IF SO, WHERE AND IS IT TAXABLE?

[qbteachmt]

First, it helps to STOP using all capital letters. That makes it hard to read.

Next, this is a discussion forum on the internet and full sentences with details really help with complex issues.

Something was converted; if that was not from one account that you know about, then he needs to tell you where the conversion came from. No one on the internet can answer that question. Did you ask for last year's paperwork? The 5498 for a 2021 conversion might be from a distribution 1099-R dated in 2020, such as, a rollover can have a delay.

You need to ask him about his retirement account activities.

Conversions are nearly always taxable unless, for instance, it is a nondeductible IRA contribution immediately converted to Roth, which means no earnings to tax, post-tax contribution converted, and there has to be no other IRA-type money that is non-basis. Otherwise, any conversion is pro-rated for taxes.

[Shirley79]

I'll try again.  I tend to not explain well.

The Roth Form 5498 has an amount on line 3 (Roth IRA Conversion Amount).  The taxpayer withdrew from his Roth to compensate for no withholding on 2021 taxable income.  He was not converting a traditional IRA to a Roth but simply taking money out of his Roth to pay his 2021 income tax.

Since the "conversion" was totally Roth related, I considered it a non taxable event.  Please let me know if I am missing something.

[qbteachmt · Accepted solution]

"simply taking money out of his Roth"

You don't seem to also have a conversion. Conversion is pre-taxed value moved into a nontaxable account, and that Conversion is taxable, to not lose track of the fact that the money was never before taxed and won't be taxed in the future (when taken out). So, the IRS taxes it at the time of the move.

"Since the "conversion" was totally Roth related, I considered it a non taxable event."

A distribution from a Roth is subject to ordering rules. And there are various 5-year tests, for tax and penalty.

https://www.investopedia.com/terms/o/orderingrules.asp

https://www.investopedia.com/retirement/tax-treatment-roth-ira-distributions/

You should only need the Form 5498 (an information form) for contributions and for valuation.

Where is his 1099-R? You use that form for income tax prep.

[qbteachmt]

Oh: A Form 5498 for 2021 won't even be available, this early. I suspect you are looking at a 2020 or earlier conversion, and that visibility is for meeting the 5-year rule for Conversion vs Contribution vs all the other rules that would be evaluated. Example: One Roth account can be used for both conversion and contribution, but a lot of people don't know this, and open a "contributory" Roth and open a "conversion" Roth, having two accounts.