Question on TIRA -> Roth IRA Conversion

Financial Planning Tax Strategies
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Hi Folks,

I read, learn and appreciate all of the info that is shared on this and other (boards whoops) categories here.

I am planning to make a TIRA → Roth IRA conversion this year. First time doing it.

I just got H&R Bock 2022 installed so that I can start to do “what if” scenarios with this conversion. I would like to stay in the 12% tax range if possible and be as close to the top of it (MFJ = $83,500) as we can get.

I’d like to enter a “proposed” 1099-something into H&R Block software for the withdrawal of the $n dollars from the TIRA. I’m assuming that H&R Bock will ask what I did with the proceeds from the withdrawal - maybe not.

I am 65+ so I do not think there will be any early withdrawal penalties.

Would anyone know what type of 1099 a TIRA withdrawal triggers and maybe even what boxes are ticked so that I can simulate mine for entering into the tax software?

Thanks a lot!!!
'38Packard

2

I don’t know if they will or they won’t. Maybe it will come up in the “interview” portion.

You’ll definitely have to enter the conversion somewhere.

1099-R

The only one that matters is box 1 with the withdrawal amount. And the “Taxable Amount Not Determined” box will be checked.

–Peter

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Thank you @ptheland !!

I’ll give that a try with different withdrawal amounts and see how much I can withdraw while still staying under the $83K threshold.

Best ~
'38Packard

4

Since this is your first time doing a Roth conversion, I would point out that if this is also your first Roth IRA, you will have to wait until the Roth IRA has been in place for at least 5 years before your withdrawals of the conversion will be considered qualified withdrawals. If you already have a Roth in place, and have for at least 5 years, then your conversion will be available for immediate qualified withdrawals, as long as you are over 59 1/2.

AJ

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Thanks AJ,

This is an important detail that I will need to remember!!

Thanks again,
'38Packard
==> Now to figure out where to note that so that I DO remember!!!

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My understanding is that if one is over 59 1/2, there is no penalty applied to a withdrawal of a conversion, regardless of the age of the Roth IRA account.

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Out of curiosity, is this a manual “what if” activity or an automated “what if” feature in the H&R Block software?

If automated, does it recalculate the taxable portion of your Social Security benefits as a result of your TIRA withdrawal? Also does it recalculate your state’s income taxes as a result of your TIRA withdrawal and any changes to taxable Social Security benefits?

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Correct, there are no early withdrawal penalties for those who are over 59 1/2. But if it’s not a qualified withdrawal, withdrawals of earnings on the conversions is still taxable.

AJ

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It is a manual activity. I entered our proposed tax information as accurately as possible and saved the file as “Proposed Tax Liability without Conversion” and then put in various numbers into the 1099-R Form that I used as the “what if” 1099-R and the software re-calculated the difference. Once I got to the answer I wanted, I saved the file again with “Proposed Tax Liability With Conversion”.

I’ll have to check to see that it does that, but I would think so.

It should. I haven’t downloaded the state program yet. I wanted to check on the Federal side first to see what I might be able to do. Over the next few weeks, I’ll refine this analysis.

I’m not sure that the state programs are available for download yet. Most of the interview questions in this early version of this year’s program say “This Interview Section is not yet finalized”. I’m assuming that the answers that I am getting from the program are close enough for me to plan my conversion amounts and tax liability accordingly.

I can add to this thread as I progress through the process. My understanding is that I need to fund the Roth by December 31, 2022 and I do not have the luxury of waiting until Q1 of 2023.

'38Packard

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“Not yet finalized”. Congress can still change the law. H&R Block usually has final download around January 1. Changes are usually minor.

If you qualify, ira or roth contributions are allowed until tax day next year. But Roth conversion is not a contribution.

11

Hi TMF Tax friends -

I wanted to get back to this topic as I progressed through the estimating process and subsequent conversions and now our 2022 Fed taxes.

I used H&R Block Tax Year 2022 software and Quicken and Excel back in November to project our income and expense categories until the end of 2022 and then did my best to project our tax liability without a Roth conversion. Then I added Roth conversions and played the what-if game by altering the 2 data entry fields for 1099-R values for me and DW in the early version of the tax software.

The projection was really close to the software calcs except for two unforeseen / unnoticed situations.

First, interest rates were going up quickly in Nov / Dec 2022 and my projection for interest income was understated in my model compared to 2022 actuals.

Second, and more problematically, is that DW is still working until June 8, 2023 and she has been electing to have some aggressive HSA contributions taken from her paycheck, which also have an employer contribution. I did my best to project all of that as well, but failed miserably.

Here’s the rub - Last year, I turned 65 in Feb and I started Medicare. DW switched her medical ins from “employee and spouse” to “employee only” insurance which also then affected her HSA contribution eligibility and the employer match contribution amount as well. Both were WAY over the IRS limitations for her situation. DW’s employer stated when they changed her medical coverage to individual, they should have also set the HSA limits to individual, but they missed that, so the contributions kept happening.

When modeling, I was unaware of this situation, so I did not include any excess contributions as income which is what has resulted from the excess contributions.

The model that I had was pretty accurate except for those two unforeseen situations, and I have exceeded the $83,500 limit. We owe no penalties because of the underpayment.

I used to have an excellent CPA Tax guy who retired recently and seeing most of our stuff is pretty run-of-the-mill accounting, I feel confident enough to do it. However, I do believe that had I been working with a CPA, she/he would have caught the big HSA thing.

So we have a higher tax bill than what we were expecting, and I think my two takeaways are:

  1. Don’t cut it so close. I did not have much cushion between what my model suggested and what I actually converted for DW and me. Had I had more cushion, I could have been under the 83,500 threshold.

  2. Maybe I should find another trusted CPA who would find stuff like this :wink:

Anyway, taxes are done, not filed, as I’ll wait to pay them our dimes.

'38Packard
→ Happy Tax Season

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