Entering a Roth IRA conversion (not backdoor)

[basskleff]

Hi,

TurboTax either online or desktop Home and Business, in speaking just now on the phone with TurboTax support, apparently automatically detects that your distribution from your traditional or other IRA, as reflected on your custodian's 1099R (box 7 entry), is in fact a conversion, and not just a distribution as reflected in box 1. My Box 7 entry had a "2" designation or distribution code.

So I am following up with a question on that here, to give myself comfort.

Nowhere, apparently, does TurboTax (any version) in this special retirement income interview section,  actually prompt or ask you if this 1099R Box 1 "Gross Distribution", was a conversion, if so how much was the actual conversion, was it a partial etc.  It leaves one feeling uneasy, and speculating about possibly getting hit with an extra punitive tax- an early withdrawal penalty. Perhaps. At least it does with me.

So let me briefly summarize my scenario, and I'll ask the question.

I'd  elected in September 2022, to convert a certain stock, certain # of shares from my Traditional IRA to my Roth IRA.  The conversion amount (day's value of the stock * number of shares), is taxable as income, as it was never taxed getting into the Traditional IRA, and is now going into a Roth where it will (hopefully) not be taxed again.  One has to pay tax sometime, and pays on the conversion event. Fine.

Vanguard in my case, says nowhere at all on their 1099R that this was a conversion, even though in September, I converted 100% of this number of a stock at the day's market price to the Roth and experienced Vanguard very specific "conversion event" prompts. 100%.

Ironically, no one (Vanguard or TurboTax), come tax time, wants to admit that it was in fact a 100% conversion, so "conversion" designation is nowhere to be found or pointed out. I spoke with Vanguard specialists as well. Kind of remarkable that Vanguard can't restate again that it was a conversion on their 1099R. Oh well.

The question is, does TurboTax as the support person indicated, automatically figure out that you did a Roth conversion (100% or in some portion) on this 1099R box 1 gross distribution?  How does it know?

The tax (I owe some in my case) seems to be right, and I did get a "Good News! You owe no further tax" message from TurboTax- my desk version.  And this would indicate the distribution shown in box 1 was in fact treated correctly as a 100% Traditional-> Roth conversion, and there's therefore no punitive "dummy" extra penalty tax. Good to hear.  But nothing about "You did a conversion" or "Did you do a conversion?".  (Why is another question, that you don't need to bother- just strikes one so).

Just trying to gain a little more comfort here on a conventional (not backdoor) Roth conversion that TurboTax does automatically pick up the conversion and treat it correctly.

Thank you, for your advice!

-BK

[DanaB27]

You will indicate in the follow-up questions that this was a conversion to a Roth IRA and then TurboTax will fill out Form 8606 Part II and the taxable amount (line 18) is carried to Form 1040 line 4b.

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"

[basskleff]

Thank you.

It is buggy in my opinion in the desktop PC version, installed from DVDrom, if one elects to have TurboTax go out and download their 1099R from the fiduciary trust custodian, eg. Vanguard.

None of your steps 8 & 9 prompting exist then.  Somehow in this automatic 1099R download case, TurboTax picks up that it was a conversion and of what proportion (100% or less), based, I am guessing upon the box 7 code on the 1099R.  And there is no indication of conversion.

So it would appear that the user has to know to elect to enter the 1099R manually in order to be presented all the prompting about Roth conversion.  That's a problem.

But thank you.

BK