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FWT on Roth Conversion?

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    FWT on Roth Conversion?

    Had a client who converted a traditional ira to a roth ira in 2010 and elect to have it taxed in 2011/2012.

    1099R had:
    Gross Dist $50K
    Taxable Dist $50K
    FWT $5K
    IRA box checked
    Code 2 - early/exception applies

    Form 5498 received shows converted amount for net of $45 K

    So, for 2010, should the return show

    1040 p. 1 line 15 b of $0
    8606 p. 2 taxable in '11 and '12 of $25K each


    1040 p. 1 line 15 b of $5
    8606 p. 2 taxable in '11 and '12 of $22.5K each

    "A" defers the tax on the FWT to '11/'12
    "B" taxes FWT portion of distribution to '10.

    I reported as A on original return. Do I need to amend???


    Interesting .. My first reaction was to think 5000 should have been reported as taxable but now am not so sure. After all the client did receive 5000 or benefit from in 2010.
    Ah Hah ... put this in a 2010 practice problem. Apparently you would make two entries for the 1099R for 2010. One showing 5000 with 5000 witheld using category T. And one showing 45000 as converted to the Roth using category C. So should have reported as B.

    Now that I think about it I have had similar situations in the past.


      Still up in the air.

      We are still fighting about it in our office.


        I agree that the $5,000 is taxable in 2010 as a distribution, and would suggest that if taxpayer is not 59 1/2 it would be subject to 10% penalty.


          I agree as well. Report as stated in Option B. And amend 2010 to accommodate. This is consistent with IRS regs on rollovers of regular IRA's.
          Last edited by Burke; 03-08-2012, 11:30 AM.



            Still fighting in the office about this.

            However, it's MY client and I'm thinking to amend and pay tax and penalty. Taxpayer is very conservative, to boot.

            Any other opinions?