How to code Box 7 of 1099-R for Traditional IRA converted to Roth IRA

Thanks for the clarification! You're right - I just double-checked and the financial institution already filled out Box 7. They used Code 2, even though I'm over 59.5, which confused me because I thought that was for early distributions. So Code 2 is correct for Roth conversions regardless of age? Also, do I still need to file Form 8606 if I already had taxes withheld during the conversion process?

Code 2 is correct for Roth conversions regardless of age. It's a bit counterintuitive since it says "early distribution," but the "exception applies" part is what matters here - the exception being the conversion to a Roth IRA. Yes, you absolutely should still file Form 8606 even though taxes were withheld. Form 8606 documents the conversion and calculates the taxable amount based on any non-deductible contributions you may have made to your Traditional IRA over the years. Without this form, you risk potentially paying taxes twice on some of your money. The form also creates a paper trail of your conversion for the IRS.

Did you have to pay for this service? And did it actually tell you anything different than what you could find on the IRS website? I'm wondering if it's worth trying.

I'm a bit skeptical about these tax tools. How does it handle the basis calculation if you have a mix of deductible and non-deductible contributions in your Traditional IRA? That's where I always get stuck.

No, there's a free option that covers basic document analysis which is what I used for understanding the 1099-R codes. It actually explained things much more clearly than the IRS publications, which tend to be really technical and hard to follow. For the basis calculation question, that's actually where it really shined. It has a specific module for Form 8606 that walks through the pro-rata calculations if you have both deductible and non-deductible contributions. It breaks down the formula and shows you exactly how much of your conversion is taxable. I had about 30% non-deductible contributions and was calculating it all wrong before using the tool.

Wait, how does this work? The IRS phone lines are notoriously impossible to get through. Are you saying this service somehow gets you to the front of the queue?

Yeah right. Nothing gets you through to the IRS faster. I've been trying for months. This sounds like a scam that just takes your money and puts you on hold like everyone else.

It uses a system that continuously redials the IRS for you using their algorithm that identifies the best times to call. Once they get through, they call you and connect you directly to the IRS agent. No waiting on hold for hours. Yes, it actually does get you to the front of the queue, in a sense. They handle all the redial attempts and waiting, then bring you in only when an agent is available. I was skeptical too until I tried it - I had spent over 3 weeks trying to get through on my own with no luck. With Claimyr, I was talking to an agent in under 25 minutes.

Does this distinction affect what code should appear in Box 7 of the 1099-R? Also, is there a time limit for how long you have to complete a conversion vs. a rollover?

The distinction doesn't change what code appears in Box 7 for your situation - Code 2 is still correct for conversions from Traditional to Roth IRAs. For timing, there's a big difference. With a rollover between like accounts (Traditional to Traditional), you must complete the rollover within 60 days to avoid taxes and penalties. You're also limited to one rollover per 12-month period for each IRA. Conversions (Traditional to Roth) don't have the once-per-year limitation, so you can do multiple conversions in a year if you want. However, you still need to complete each conversion within 60 days of receiving the distribution. Conversions are always taxable events regardless of timing (you pay tax on any previously untaxed amounts).

I used TurboTax for my Roth conversion last year. It handled it pretty well once I entered all the information from my 1099-R correctly. Just make sure you indicate it was a conversion to a Roth IRA when prompted. The software automatically generated Form 8606 and calculated the taxable amount. One thing to watch for - if you have non-deductible contributions in your Traditional IRA, you need to have records of those and enter them correctly. That's where most people run into issues.

Great questions! For partial conversions, the distribution code remains the same - you'll still see Code 2 on your 1099-R regardless of whether you convert $50k or the full $200k. The tax treatment is also the same, but the pro-rata rule applies if you have any non-deductible contributions across ALL your Traditional IRAs. Here's the key thing about partial conversions: if you have non-deductible contributions in any Traditional IRA, you can't just convert the "tax-free" portion. The IRS requires you to treat all your Traditional IRAs as one big pot, so your $50k conversion would include both taxable and non-taxable portions based on your overall ratio. For documentation of non-deductible contributions, your tax returns should be sufficient since you would have filed Form 8606 for each year you made non-deductible contributions. However, I'd also recommend keeping copies of your IRA contribution records from your financial institution as backup documentation. The IRS can go back and audit several years, so having multiple forms of proof is always helpful. If you can't find old Form 8606s, you can request transcripts from the IRS that will show your historical filings.

Great questions about withholding strategy! I'm also approaching retirement age and have been researching this exact scenario. For withholding percentage, I'd suggest calculating your marginal tax rate first. If you're normally in the 22% bracket but the conversion pushes you into 24%, you'll want to withhold closer to 24-25% to be safe. The standard 20% withholding often isn't enough if the conversion bumps you up a bracket. I used a tax calculator online to estimate the impact - plugged in my expected W-2 income plus the conversion amount to see where I'd land. You might also want to consider state taxes if you're in a state with income tax. Your multi-year strategy is smart! I'm doing exactly that - spreading a $200k conversion over 4 years to stay in the 22% bracket rather than jumping to 24% or higher. It's called "bracket management" and can save thousands in taxes. Just remember each conversion year will require its own Form 8606 filing. One tip: consider doing the conversions early in the year so you have more time to adjust withholding on your regular paycheck if needed, rather than scrambling at year-end.

You can do Roth conversions annually without any waiting period! Unlike the once-per-12-month rule that applies to IRA-to-IRA rollovers, there's no frequency limit on conversions from Traditional to Roth IRAs. Many people do them every year as part of their retirement tax planning strategy. Since you're 61, you're in a great position to continue annual conversions until you hit RMD age (73). This gives you about 12 years to systematically convert your Traditional IRA balance while potentially staying in lower tax brackets, especially if you retire and have reduced income. Just remember that each conversion will generate its own 1099-R with Code 2, and you'll need to file Form 8606 each year to document the conversions. Also, keep in mind the 5-year rule for each conversion - you'll need to wait 5 years from each conversion date before you can withdraw those converted amounts penalty-free (though at 61, you're probably not planning early Roth withdrawals anyway). Your 25% withholding strategy sounds smart for bracket management. Many people use annual conversions to "fill up" their current tax bracket each year rather than jumping to higher brackets with larger conversions.