Friday, January 20, 2012

Recognizing Roth Conversion Income in 2011/12

Taxpayers engaging in one of these transactions during 2010 must report half of the taxable amount from the transfer on their 2011 tax return and half in 2012, unless the taxpayer:

• Elected to include the taxable amount in income in 2010 (this election cannot be revoked after the due date for the 2010 tax return);

• Recharacterized the transfer to a Roth IRA as a traditional IRA (the deadline for recharacterizing a 2010 transfer was October 17, 2011; or

• Received a taxable distribution in 2010 or 2011 from the Roth IRA (in which case, the taxpayer would report a different amount on the 2011 return).

On Form 8606 of the 2010 return taxpayers would have reported the transfer and either made the election to report it in 2010 or identified the 50 percent amounts reportable in 2011 and 2012. Assuming they did not receive a distribution in 2011, the IRS instructed taxpayers this same amount will be included on the 2011 Form 1040 under IRA distributions, and pensions and annuities.

If the taxpayer received a taxable distribution (of the converted amount) in 2010 or 2011 from the Roth IRA, then in 2011 the taxpayer would follow different reporting guidelines.

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