Traditional Individual Retirement Agreements (IRAs) can be converted to a Roth IRA, however these conversions are taxable transfers.
Where do I enter this in the system?
To report a conversion properly, you must complete three steps:
Step One
The taxpayer will be issued Form 1099-R showing the total distribution made from their Traditional IRA account.
To report, go to:
- Federal Section
- Income
- 1099-R, RRB-1099, RRB-1099-R, SSA-1099
- Add or Edit a 1099-R
- Traditional IRA funded with pre-tax dollars: Amount in box 2a would include all pre-tax dollar contributions. Tax will apply.
- Nondeductible Traditional IRA funded with Post-ta dollars: Amount in Box 2a would include only pre-tax contributions or earnings.
Step Two
The full distribution does not need to be converted to a Roth IRA. Conversions must be reported on Form 8606, Part II. Form 1099-R must be entered into the tax program for the program to populate Form 8606.
Form 8606 can be found by going to:
- Federal Section
- Deductions
- Adjustments to Income
- Nondeductible IRAs Form 8606
- Enter the amount being converted as "Net amount converted from traditional, SEP, and SIMPLE IRAs to Roth IRAs"
Step Three
Complete the IRA Deduction form
- Federal Section
- Deductions
- Adjustments to Income
- IRA Deduction- Enter amount converted as IRA Contribution amount
- If you select you have a retirement plan, the amount entered will be reduced by $6000 and entered on line 1 of the 8606 form.
- If you select you do not have a retirement plan, the amount entered will be carried to line 1 of form 8606