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CCH® PENSION — 01/27/12

IRS provides guidance on reporting 2010 Roth IRA rollovers and conversions

On its website, the IRS has posted guidance on how taxpayers should report 2010 Roth IRA rollovers and conversions on their 2011 income tax returns.

During 2010, a taxpayer may have rolled over eligible distributions from a retirement plan to a Roth IRA, converted amounts from a non-Roth IRA to a Roth IRA, or made an in-plan Roth rollover (after September 27, 2010). If so, the taxpayer must report half of the taxable amount of these 2010 rollovers and conversions on their 2011 tax return unless the taxpayer: (1) elected to include the taxable amount in income for 2010 by filing a 2010 Form 8606 and completing Part II or Part III or both, as applicable, and checking the box on line 19, the box on line 24 or both; (2) recharacterized the 2010 rollover or conversion to a Roth IRA; or (3) received a distribution in 2010 or 2011 of any of the taxable amount (in which case, the taxpayer may have to report an amount other than half on their 2011 tax return).

No 2010 or 2011 distributions

According to the IRS, if no part of the 2010 conversion to a Roth IRA was distributed in 2010 or 2011, the taxpayer must report the amount from line 20a of 2010 Form 8606 on line 15b of 2011 Form 1040; line 11b of 2011 Form 1040A; or line 16b of 2011 Form 1040NR.

If no part of a 2010 rollover to a Roth IRA (from a retirement plan other than an IRA) or 2010 in-plan Roth rollover was distributed in 2010 or 2011, the taxpayer must report the amount from line 25a of 2010 Form 8606 on line 16b of 2011 Form 1040; line 12b of 2011 Form 1040A; or line 17b of 2011 Form 1040NR.

2010 distributions

On the 2010 tax return, the taxpayer would have had to report distributions of 2010 rollovers and conversion to a Roth IRA and in-plan Roth rollovers. According to the IRS, on the 2011 return, the taxpayer must now report:

• on Form 1040, line 15b (Form 1040A, line 11b; or Form 1040NR, line 16b) the smaller of: (1) the amount from the 2010 Form 8606, line 20a, or (2) the remaining taxable amount of the 2010 conversions to a Roth IRA; and
• on Form 1040, line 16b (Form 1040A, line 12b; or Form 1040NR, line 17b) the smaller of: (1) the amount from the 2010 Form 8606, line 25a, or (2) the remaining taxable amount of the 2010 rollovers to a Roth IRA and in-plan Roth rollovers.

The IRS provides an illustrative example of these rules.

2011 distributions

The taxpayer may have to include in 2011 income all or some of the taxable amount of the 2010 rollovers and conversion to a Roth IRA and in-plan Roth rollovers that would have otherwise been included in 2012 income. To determine the amount to report in 2011, the taxpayer must complete the 2011 Form 8606, using Part III, for distributions from a Roth IRA and Part IV, for distributions from a designated Roth account.

Source: IRS website, January 3, 2012.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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