Roth IRA conversion and 1099’s
I planned with several clients in 2007 for Roth IRA conversions. The 1099’s were issued by some of the IRA custodian companies and brokerage firms with a 1 in box 7. Some were issued with a 2 in box 7. I was told by my accountant that the custodian companies of the IRA accounts should have issued 1099’s with a J in box 7. What is the code that needs to be placed in box 7 (distribution) of the 1099 when a Roth IRA conversion has been performed?
Permalink Submitted by Alan Spross on Fri, 2008-04-18 04:54
Inst for Form 1099R indicate that the Box 7 code for a Roth conversion should be “2” if the conversion is done prior to age 59.5. If done post 59.5, the correct code is “7” (normal).
“J” certainly could not apply since it is only used for early distributions FROM a Roth IRA, and a Roth conversion distribution obviously emanates from a TIRA.
For tax reporting purposes a Roth conversion is handled as a distribution and rollover, therefore the 1099R from the TIRA custodian will look much like a regular distribution with the exception that the 2 code is used if the custodian does a transfer and knows the funds went into a Roth. The taxpayer must file an 8606 to report a Roth conversion to essentially determine the taxable amount and simultaneously report a rollover to a Roth IRA without entering “rollover” next to line 15b of Form 1040.
Once tax software is told that a distribution was converted, Box 7 becomes moot since an early distribution penalty would not apply to a rollover in any event.
Permalink Submitted by Deborah Gamber on Fri, 2008-04-18 05:13
Thank you for the clarification.
Permalink Submitted by Denise Appleby on Sat, 2008-04-19 04:32
I am wondering if the 1099-Rs with Code 1 represent conversions that were done as indirect conversions ( http://www.retirementdictionary.com/Indirect-Conversion.htm ). If so, the reporting is correct and the IRA owner would need to file IRS form 5329 to claim the exception. If not, the IRA owner can still file 5329 or have the custodian correct the reporting