Yahoo Finance How to report IRA conversions on your taxes
Our tax experts are answering Yahoo Finance viewer questions as we hit the homestretch of tax season. A lot of those questions have to do with the delicate dance of taxes and retirement investing. Ebong Eka, a CPA with EKAnomics Tax Relief, has some advice for you.
If I converted some of a traditional IRA to a Roth IRA, how do I report it?
This is a topic that’s so important, it even gets its own form. If you want to convert a traditional IRA to a Roth IRA, report the contributions on Form 8606, Eka says.
An IRA conversion can be incredibly handy for tax savings -- if you qualify. “One reason why you would convert a traditional IRA to a Roth IRA is that your income level has dropped in the current year,” Eka says, explaining that eligibility for a Roth IRA is based on income.
To qualify for a Roth IRA, your income limit is $135,000 if you’re filing as single, and $199,000 if you’re married filing jointly. If you make more than that, it starts to phase out.
So how exactly do you go about reporting those conversions? “The portions that were once deductible from your taxes traditionally are now included as income on the Roth IRA, so you put that on Form 8606 in part 2, line 16 to line 18,” Eka says. “On Form 1040, you report that on either line 4A or 4B. The tax software will take care of that for you.”
If you have tax questions, send them to us at moneyquestions@yahoo.com.
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