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IRA promotion bonus and Roth IRA convertion

Forum|Forum|2 years ago
March 17, 2024
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Hi, I have two related questions:

1.Last year, I deposited a non-deductible $1,000 into my IRA. The broker had a promotion that added $100. When reporting this, in addition to Roth IRA conversion, am I correct in reporting in my 8609 that I deposited $1,000 (not $1,100) into the IRA and $1,100 into the Roth IRA, essentially being taxed for only $100 (as the balance was 0 before the contribution)? Do I need to include the $100 bonus in the IRA report or somewhere else? I read that needs to be reported in my income, but then won't I end up paying tax for that twice, one time as income and other time when it comes to Roth IRA as IRA will look like it generated $100.

2.When adding to the 2023 IRA now (additional $1,500), I need to state the total value for the end of 2023. Since my end-of-year value for 2013 was 0, should I add the $1,500?

Best answer by dmertz

Had the $100 been a bonus provided outside the traditional IRA and then included as part of a total $1,100 of contribution, I would expect that the broker would have been required to issue to you a Form 1099-INT reporting the $100 of income. Instead, it seems that you made a $1,000 nondeductible traditional IRA contribution and the $100 bonus represents taxable earnings in the traditional IRA, not separately reportable income, but to be certain you would want to review the 2023 Form 5498 from your traditional IRA. Assuming the latter, with no funds in any traditional IRA at the end of 2023, your Roth conversion would be $100 taxable and $1,000 nontaxable, resulting in $100 of taxable conversion basis and $1,000 of nontaxable conversion basis being added to your Roth IRAs for the purpose of determining the tax consequences of taking a nonqualified distribution from any of your Roth IRAs.

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dmertzAnswer

Employee

Had the $100 been a bonus provided outside the traditional IRA and then included as part of a total $1,100 of contribution, I would expect that the broker would have been required to issue to you a Form 1099-INT reporting the $100 of income. Instead, it seems that you made a $1,000 nondeductible traditional IRA contribution and the $100 bonus represents taxable earnings in the traditional IRA, not separately reportable income, but to be certain you would want to review the 2023 Form 5498 from your traditional IRA. Assuming the latter, with no funds in any traditional IRA at the end of 2023, your Roth conversion would be $100 taxable and $1,000 nontaxable, resulting in $100 of taxable conversion basis and $1,000 of nontaxable conversion basis being added to your Roth IRAs for the purpose of determining the tax consequences of taking a nonqualified distribution from any of your Roth IRAs.

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Ig-sdloAuthor

@dmertz thanks for answering one of my questions, I got the following forms:

IRA 5498 - $1000 contribution

Roth IRA 5498 contribution $1100

1099-R,. boxes 1 and 2a show $1100

Based on my reporting I am taxed on $100 when converting as it was an IRA income. Wanted to make sure no other place where I needed to report it. I didn't get 1099-INT