Conversions from Traditional IRA to Roth - in 2023 TurboTax conversions now taxed just over 50%

Forum|Forum|1 year ago
May 21, 2024
2 replies
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Hello, I retired at 55 and a few years ago started doing conversions from my traditional IRA to Roth. I stopped doing large ones since now the IRMAA impact can be significant for both my wife and I (she is Medicare next year).

Last year I harvested some gains to get me up to the target IRMAA bracket limit. I'm using the same 2023 software to predict 2024 (recognizing not exactly the same).

I have recently discovered that had I done conversions instead of harvesting gains - I would be taxed differently. It's bizarre - in 2021 and 2022, 100% of my IRA distributions (that were converted) were part of my AGI and taxed accordingly - just as expected. In the 2023 software, however when I started instead substituting conversions instead of gains - only a little over 50% of the conversion amount is taxable (it ranges from 50.6% at $20K converted to 55.2% taxed of a $200K conversion. Note - 100% of my IRA is tax-deferred and all questions asked by TurboTax in the step-by-step are normal. I'm modeling the 1099R just as mine looked in 2021 and 2022 (taxable amount not determined, code 7 distribution (normal) IRA/SEP/SIMPLE box checked. I am 65 years old.

Has anyone experienced this? Is this a bug in 2024 TurboTax? Was there a change in the tax code in 2023?

TurboTax Basic Windows

VolvoGirl

Employee

What are you entering to test for 2024? You should enter a 1099R not a 1099B. Whether you did a conversion, took a withdrawal or "harvested gains" it would be taxed the same. Are you switching to forms mode and checking the 1040 line 4a and 4b for the taxable amount?

. @dmertz

dmertz

Employee

Examine Form 1040 lines 4a and 4b. If you see less added to line 4b than the amount you are entering as your Roth conversion, it implies that you've told TurboTax that you have basis in nondeductible traditional IRA contributions. Also make sure that you are not indicating some amount as having been rolled over instead of converted to Roth. Examine Form 8606, the basis shown on the IRA Information Worksheet and the details in section B of TurboTax's 1099-R form.

NCPERSON1

please clarify what you mean by "harvesting gains"?

if you are entering a 1099B to reflect capital gains from a non-qualified account, it is taxed at the capital gains rate (15% for many taxpayers).

if you distributing money from the Trad IRA as either a Roth conversion or just taking the money, that is taxed as ordinary income. This transaction would be reflected on a 1099-R.

both entries add the same income to your MAGI calculation to determine any IRMAA impacts, but the income is taxed at different rates.

dmertz

Employee

The mention of harvesting gains is extraneous information with regard to the concern about how the taxable amount of a Roth conversion is determined. AGI and tax rate are not factors in determining the taxable amount of a Roth conversion. (Most of the post seems to be background information unrelated to the actual concern.)