How to report 2010 Roth IRA rollovers and conversions

IRS issues guidance for reporting the income tax consequences of 2010 conversions to Roth IRAs for taxpayers that did not elect to include the entire value of the conversion as income on their 2010 income tax return.

Background.  Beginning in 2010, the rule that barred taxpayers with more than $100,000 of modified adjusted gross income from converting traditional IRAs to Roth IRAs was eliminated.  For conversions made in 2010, any amounts that would be included in income as a result of the conversion must be included in income in equal amounts in 2011 and 2012, unless the taxpayer elected to include the entire amount in income in 2010. (Code Sec. 408A(d)(3)).

Income Tax Reporting.  Half of the taxable amount of the 2010 conversion must be reported on the 2011 income tax return unless the taxpayer (1) elected to include the taxable amount in income for 2010 by filing a 2010 Form 8606 (“Nondeductible IRAs”), and completed Part II or Part III or both, as applicable, and checked the box on line 19, the box on line 24, or both; (2) re-characterized the 2010 rollover or conversion to a Roth IRA; or (3) received a distribution in 2010 or 2011 of any of the taxable amount (in which case, an amount other than half may need to be reported on the 2011 tax return).

If no part of the 2010 conversion to a Roth IRA was distributed in 2010 or 2011, the amount from line 20a of the 2010 Form 8606 must be reported on:

  • line 15b of the 2011 Form 1040;
  • line 11b of the 2011 Form 1040A; or
  • line 16b of the 2011 Form 1040NR.

If, as required, distributions of a 2010 conversion to a Roth IRA were reported on the taxpayer’s 2010 tax return, the taxpayer must, on the 2011 return, report:

  • on Form 1040, line 15b (Form 1040A, line 11b; or Form 1040NR, line 16b) the smaller of (a) the amount from the 2010 Form 8606, line 20a, or (b) the remaining taxable amount of the 2010 conversions to a Roth IRA; and
  • on Form 1040, line 16b (Form 1040A, line 12b; or Form 1040NR, line 17b) the smaller of (a) the amount from the 2010 Form 8606, line 25a, or (b) the remaining taxable amount of the 2010 rollovers to a Roth IRA and IPRRs.

Example.  A taxpayer converted $30,000 from a traditional IRA to a new Roth IRA on February 1, 2010.  On June 1, 2010, the taxpayer received a $20,000 distribution of the converted amount from the Roth IRA.  Part II of the 2010 Form 8606 was completed to report the $30,000 as the taxable amount of the conversion, and the taxpayer elected to include $15,000 of the taxable amount in income for 2011 and $15,000 for 2012.  The $30,000 was the only amount put into the new Roth IRA in 2010, so the entire $20,000 distribution was from the taxable amount of the conversion.  The $20,000 was included in the taxpayer’s 2010 income by reporting it on line 15b of the 2010 Form 1040.

Example.  A taxpayer converted $30,000 from a traditional IRA to a new Roth IRA on February 1, 2010.  On June 1, 2010, the taxpayer received a $20,000 distribution of the converted amount from the Roth IRA.  Part II of the 2010 Form 8606 was completed to report the $30,000 as the taxable amount of the conversion, and the taxpayer elected to include $15,000 of the taxable amount in income for 2011 and $15,000 for 2012.  The $30,000 was the only amount put into the new Roth IRA in 2010, so the entire $20,000 distribution was from the taxable amount of the conversion.  The $20,000 was included in the taxpayer’s 2010 income by reporting it on line 15b of the 2010 Form 1040.

Only $10,000 of the 2010 conversion remains to be taxed, and because this is smaller than the $15,000 listed on line 20a of the 2010 Form 8606 (half of the total 2010 conversion to a Roth IRA), $10,000 must be included on line 15b of the 2011 Form 1040. None of the 2010 conversion to a Roth IRA will have to be reported in 2012 income.

Additionally, a taxpayer may have to include in 2011 income all or some of the taxable amount of 2010 rollovers and conversion to a Roth IRA and IPRRs that would have otherwise been included in 2012 income. To determine the amount to report in 2011, the 2011 Form 8606 must be completed, using Part III for distributions from a Roth IRA and Part IV for distributions from a designated Roth account.

Click here to view the original IRS article.

For additional information see:

IRS Publication 590, Individual Retirement Arrangements (IRAs)

Retirement Plans FAQs: IRAs

Topic 413 – Rollovers from Retirement Plans

Notice 2009-75, Rollovers from Employer Plans to Roth IRAs

Notice 2010-84, Guidance on In-Plan Roth Rollovers