Simple Ira conversion to Roth IRA

Forum|Forum|4 years ago
February 17, 2022
3 replies
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Taxpayer maxes out her 401k on her salary. Makes to high of an income to add a contribution to a roth. She gives me a 1099 simple ira code #2 and letter from investment advisor that says he did a conversion to the roth and let him know if he went over her 7000 limit. Well I did not think there was a limit to a conversion. Makes me think he was trying to do a contribution which she clearly does not qualify for since she is over $140.000 Do they have paperwork showing a conversion did not see any coding lists for this. Is there a penalty exception for conversions. Was trying to look that up. There is really no reason for exception other than she put part into this so called conversion. then the rest she kept I would think she should be paying penalty on on the part she kept.

one of those the more they talk the more confused and different scenarios I keep seeing ugh!!!!!!!

Lacerte Tax

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rbynaker

Level 13

I've practically given up on relying on taxpayer's knowledge for any of this stuff. I literally just got off the phone with someone who made a $6K Roth contribution back in April. The 5498 won't be ready until May and he said he could "only download transactions in csv format." "How about a monthly statement for April 2021?" Surprise, he could get one of those and lo and behold it shows a $6K contribution to an account identified as a Roth IRA and, bonus, a TY designation of 2021 right there on the statement. So I have everything that I would have gotten from a 5498 all in one place and we don't have to wait until May.

Moral of the story, there are broker statements somewhere that will tell you what actually happened and when. Follow the breadcrumbs.

Rick

qbteachmt

Level 15

"and letter from investment advisor that says he did a conversion to the roth and let him know if he went over her 7000 limit."

That doesn't even exist. That is the Contribution Limit. There is no such thing as Conversion Limit.

You mention 401k and SIMPLE IRA as if they are synonyms. They are Different plans and accounts. Did she have an old SIMPLE IRA account that was converted to Roth, making a taxable event?

There is never a penalty for Conversions.

"she put part into this so called conversion. then the rest she kept"

So you have a Pro Rata conversion (if other accounts are pre-tax and have balances) and a Distribution (which might be subject to early penalty).

You have too many things intertwined. They are not intertwined. Take them one at a time.

Don't yell at us; we're volunteers

rbynaker

Level 13

I agree. And IMO, an investment advisor that mentions a conversion and a 7000 limit in the same sentence immediately becomes an unreliable source of information. There are plenty of financial advisors that I've worked with who really know their stuff and if they tell me something happened a certain way, I'm going to believe them. There are also plenty who (as in this case) can't tell you the difference between a contribution, a conversion, or a rollover. No problem, I don't need their opinion, I can look at the paper trail and reach my own conclusion.

I'm not sure yet if we're talking about a SIMPLE-IRA or just a simple IRA. Since words matter, I would call the latter a Traditional IRA to avoid confusion but I can understand if not everyone else does it that way. 🙂

Rick