Conversion to Roth with early distribution.

[Ranger]

In 2010 client converted 15,000 from traditional IRA to Roth. After the conversion in 2010, client withdrew $5,500.

According to my calculations, 5,500 was reported in 2010, 7,500 in 2011 and 2,000 in 2012.

ATX is showing 7,500 due in 2012. I assume ATX is not tracking the amount taxed in 2010 but if somebody can verify I would appreciate it.

Thanks.

[joanmcq]

Did you fill out the Roth basis worksheet?

[Ranger]

Upon conversion, basis was zero. Following the conversion rules for 2010, 7,500 would be taxed in year 2011 and 2012. But as I recall, since 5,500 was distributed and taxed in 2010, 7,500 would be taxed in 2011 and the balance of 2,000 in 2012.

The software is showing 7,500 taxable in 2012. That can’t be right since the total taxable would be 5,500 more than the amount that was converted (15,000).

[joanmcq]

He withdrew before 5 years had passed since he converted. The withdrawal is taxable too. Look up the rules on conversions. Although I can't tell you if the calc is wrong (I think it should be $7000 taxable) because I'm fried.

[Ranger]

Thanks for your post Joan. I confirmed my calculations per the example on page 67 of Pub 590 for 2012.