Here’s what HIVE AI had to say about “How do I tax Roth conversions and distributions this year?”:

Taxing Roth conversions and Roth distributions this year

Roth conversions: what is taxable and how to report

• A conversion from a traditional, SEP, or SIMPLE IRA to a Roth IRA is treated as a distribution from the non‑Roth IRA and a rollover to the Roth IRA. The taxable portion equals the fair market value converted minus any after‑tax basis you have in all traditional IRAs, determined under the pro‑rata rules and reported on Form 8606 for the year of conversion 1
• Use Form 8606 to compute the nontaxable and taxable portions of your IRA distributions and conversions for the year. The IRS worksheet allocates basis across all distributions and conversions to determine the taxable income you must include on Form 1040 2
• Your IRA custodian will issue Form 1099‑R for the conversion, with the total conversion in box 2a and the “taxable amount not determined” box checked; you determine the taxable amount on Form 8606. Box 7 uses Code 2 if under 59½ or Code 7 if at least 59½, and the IRA/SEP/SIMPLE box is checked 3
• Conversions can’t be recharacterized back to traditional IRAs for conversions made on or after January 1, 2018 4
• Conversions are treated as income in the year of conversion and should be included in your estimated tax planning; the Service generally won’t waive underpayment penalties solely because of the conversion 5

Practical tip: backdoor Roth

• If you make a nondeductible traditional IRA contribution and convert it, the pro‑rata rule still applies across all your traditional IRAs, so you’ll owe tax on the pre‑tax portion per Form 8606 2

Roth IRA distributions: when they’re tax‑free vs taxable

• Qualified Roth IRA distributions are tax‑free if both are true: your Roth IRA 5‑taxable‑year period has run, and you meet a qualifying event (age 59½, death, disability, or first‑time home purchase) 6
• Nonqualified distributions use statutory ordering rules: they come out in this order—regular contributions first, then conversion/rollover amounts (oldest conversions first), then earnings. Regular contributions come out tax‑free; converted amounts are tax‑free for income, but may be subject to the 10% additional tax under the “5‑year conversion” rule if you are under 59½; earnings are taxable and may be subject to the 10% additional tax if the distribution isn’t qualified 2

The 5‑year conversion “recapture” rule (early distribution penalty)

• If you take a Roth IRA distribution within 5 tax years of a conversion, the portion allocable to the taxable amount of that conversion is subject to the 10% additional tax unless an exception applies. Form 5329 instructions show how to compute and report this “recapture amount” 7
• The IRS provides a detailed example allocating a Roth IRA distribution across prior conversions to determine the recapture amount for Form 5329, line 1 7

Where to report Roth IRA distributions

• Use Form 8606, Part III, to determine the taxable amount of your Roth IRA distribution using the ordering rules. If, after applying the ordering rules, nothing is taxable, you’ll list the gross distribution on Form 1040 line 4a and nothing on 4b; otherwise, include the taxable amount on line 4b 8
• If any early distribution is subject to the 10% additional tax, compute and report it on Form 5329, Part I 9

Designated Roth accounts in workplace plans vs Roth IRAs

• The 5‑year clock for a designated Roth account in a 401(k)/403(b) runs from the first year you made a designated Roth contribution to that plan (or an earlier plan if you rolled over a designated Roth account); this is separate from a Roth IRA’s 5‑year clock 10
• Special in‑plan Roth rollover rules and 5‑year recapture can apply to designated Roth accounts; see Notice 2010‑84 for 5‑year inclusion/recapture mechanics related to rollovers and in‑plan Roth rollovers 11

Required minimum distributions and penalties

• If you fail to take the minimum required distribution from a qualified plan or 457(b) plan (or an inherited IRA), the excise tax is generally 25% of the shortfall, reduced to 10% if corrected within the correction window. This excise tax is paid by the payee 12

Excess contributions and corrective distributions

• Excess Roth IRA contributions trigger a 6% excise tax each year they remain, limited by the smaller of the excess or the 12/31 value; report on Form 5329. Correcting by a timely withdrawal of the excess and earnings treats the excess as not contributed for this purpose 13
• Form 5329 shows the 6% excise tax computation and where to report it with your individual return 9

Administrative and reporting references

• Regulatory background confirms conversions are treated as distributions and rollovers to the Roth IRA, with the conversion amount generally equal to fair market value on the date of distribution or deemed distribution 14
• Distributions and eligible automatic enrollment withdrawals in plans are reported on Form 1099‑R and included in income for the year of distribution, with 72(t) treatment as applicable. For IRA conversions, rely on the 1099‑R instruction guidance above to precisely classify and report 15

What I’d do next

• Gather your year’s 1099‑Rs and prior‑year Form 8606 to know your cumulative traditional IRA basis and Roth contribution/conversion basis
• Use Form 8606 to compute the taxable portion of any conversion and any taxable portion of Roth distributions; then use Form 5329 to compute any 10% additional tax or 6% excise tax, if applicable 8

Sources

1 – IRC § 408A(d) 📄 Summarize
2 – IRS – Publication 590-B Distributions from Individual Retirement Arrangements (IRAs) 📄 Summarize
3 – IRS – Instruction 1099-R and 5498 Instructions for Forms 1099-R and 5498, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 📄 Summarize
4 – IRS.gov – Retirement plans FAQs regarding IRAs 📄 Summarize
5 – IRS Determination 200105062 📄 Summarize
6 – Notice 2009-75 📄 Summarize
7 – IRS.gov – Instructions for Form 5329 (2024) 📄 Summarize
8 – IRS.gov – Instructions for Form 8606 (2024) 📄 Summarize
9 – IRS – Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 📄 Summarize
10 – IRC § 402A(d) 📄 Summarize
11 – Notice 2010-84 📄 Summarize
12 – IRC § 4974(a) 📄 Summarize
13 – IRC § 4973(f) 📄 Summarize
14 – T.D. 9418 📄 Summarize
15 – Treasury Regulation 1.414(w)-1 📄 Summarize

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