Form 8606 needed to report Roth IRA Conversion

yael

I have been going through all the literature and I need clarification on whether or not I'm reporting the taxes I paid on my Roth IRA conversion to the IRS.

Here's my situation:

I converted some pre-taxed dollars from my employer-sponsored 401K plan to my Roth IRA. The IRS classifies a conversion from a 401K to a Roth IRA as a "rollover" and was correctly labeled so on my 1040, Line 5b. I believe this is very important to highlight because this might be the reason why Form 8606 may not be triggering in the software. In my 1099-R, my conversion (from 401k to Roth IRA) was classified as a Code G - Direct rollover to a qualified plan. This was not a Backdoor Conversion.

Lastly, I read through the IRS Pub 590-A, and it states that Form 8606 should be filed along with my tax return to report my Roth conversion, even if the entire amount was taxable (meaning I had no non-deductible contributions to differentiate from). The pub also states that I need to fill out Part 2, since the entire amount converted were all from pre-taxed dollars.

So here's my question:

Am I reading this wrong? Why am I not seeing Form 8606 generated in my tax return from FreeTax USA? I went over the Retirement Income - 1099-R section over and over to make sure I'm checking all the right boxes (ex: Did you roll over this distribution to a Roth IRA?), and everything is correct. What's going on here? Do you think Form 8606 is not generating because the IRS is classifying this conversion as a rollover (Code G)? But then why ask me the question if this was a rollover distribution to a Roth IRA? I'm confused and I need your help to make sure that I'm reporting the taxes I'm paying right now on these conversions correctly to the IRS. I don't want to find out later at retirement age that the IRS doesn't have proof that I paid taxes on these amounts just because Form 8606 was not generated in this tax software.

Thanks!

CoryF

Thank you for joining our community, Yael.

The conversion to Roth creates taxable income in the year converted as you are correct in your research. The IRS does track Roth IRA conversions and contributions closely due to the advantages of tax free distributions during retirement age. You reported your conversion correctly and the IRS does now have a proper recording of the conversion.

We have an accuracy guarantee for everything that you input into your FreeTaxUSA account. That being said, we definitely want to answer your questions on this thread. While the instructions to Form 8606 are good to read, the actual Form 8606 has the details for an answer to your question. The Form 8606 is only needed and generated in these situations shown in the instructions to Part I.

1. There are nondeductible traditional IRA contributions to report
2. You took distributions from a traditional IRA in 2024 and you made nondeductible contributions to a traditional IRA.
3. You converted part, but not all, of your traditional IRA to Roth and you made nondeductible contributions to a traditional IRA in 2024 or an earlier year.

You mentioned that you converted a 401(k) directly to a Roth IRA (skipping the rollover to traditional IRA). Even though this is termed and coded as a rollover, you are still converting a tax deductible (pre-tax) account to an after-tax account. This action created taxable income. However, as the Part I instructions show, this did not need to generate a Form 8606 in 2024. Your original return had all the right calculations and filed the right forms for your income and deduction inputs.

You did need to answer the question "Did you roll over this distribution to a Roth IRA?" since this was your intended destination for this 401(k) account. Had you not answered this question, the box 7 code G would have created a nontaxable event (if you didn't designate the Roth conversion) and the IRS may find out later that you have a balance in a Roth IRA when a form 5498 was filed with a Roth IRA balance.