Taxpayer asks:
In 2010 I converted 40K from a traditional IRA to a Roth IRA. According to the rules I was allowed to defer payment of taxes on this until 2011 and 2012. How and where do I report income on my 2011 and 2012 returns?
Thank you,
taxgirl says:
The rules for converting to a Roth were, as you noted, a bit different in 2010 than in years prior. That’s a result of a law signed into law by President Bush, the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005 (downloads as a pdf).
If you converted amounts from a traditional IRA to a Roth IRA in 2010, you must report any amount that would have been included in income as a result of the conversion in 2010 in equal amounts in 2011 and 2012. In other words, you must report half of the taxable amount of your 2010 conversion on your 2011 income tax return (unless you included it in 2010 which you indicated is not the case) and the remainder on your 2012 income tax return.
Assuming that you didn’t take a distribution from the Roth in 2010 or 2011, you would report the amount from line 20a of your 2010 Form 8606 on line 15b of your 2011 federal form 1040 (for a form 1040A, use line 11b). You’ll find it on the front page of your return.
The rules change a little bit if any amount allocable to the taxable amount of the conversion is distributed from your Roth IRA during the year. If that happens, you generally have to include in income for 2011 that one-half mentioned above plus the part of the distribution made during the year allocable to the 2012 taxable part of the conversion. The reductions are a bit backward: any amount allocable to the conversion that you had to include in income in 2010 or 2011 because of a distribution from the Roth IRA first reduces the taxable amount that is reportable in income in 2012; the taxable amount that is reportable in income in 2011 is reduced next. Confusing enough for you? If it’s tough to sort out, be sure to consult with your tax pro and/or financial advisor.
Finally, if you elected to include the entire amount in income in 2010, then you don’t report the conversion in 2011 or 2012. You’re done.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
