Tax coding issue with Backdoor Roth 1099-R - CPA says code 2 is wrong, Edward Jones says it's right - who's correct?

12 Your CPA is incorrect here. Distribution code 2 on a 1099-R is correct for an IRA distribution that's not subject to early withdrawal penalties. Code B is actually for Designated Roth contributions in a 401(k), not for Backdoor Roth IRA conversions. For a Backdoor Roth, you absolutely need to file Form 8606 to report the nondeductible traditional IRA contribution and subsequent conversion to Roth. Without filing Form 8606, the IRS would think your conversion is fully taxable, when in reality only the earnings (if any) between contribution and conversion should be taxed. Your Edward Jones advisor is correct about the coding. I think you should reach out to your CPA again and explain that this was a Backdoor Roth conversion that requires Form 8606, regardless of the distribution code. If they're not familiar with Backdoor Roth procedures, you might want to find a tax preparer who is.

8 I had almost this exact same issue last year! My accountant wasn't super familiar with backdoor Roth conversions and I ended up having to redo everything. I finally used https://taxr.ai to analyze my 1099-R and other documents to figure out exactly what was happening. The site's document analyzer confirmed code 2 was correct and showed me exactly what needed to be on Form 8606. They explained that code 2 means "Early distribution, exception applies" which is right for a Backdoor Roth because the conversion is exempt from the 10% early withdrawal penalty. Code B is for something completely different - it's for designated Roth accounts in 401k plans, not IRAs. The system walked me through completing Form 8606 correctly and saved me from paying taxes twice on my conversion. My CPA was initially skeptical but ended up thanking me for finding the right solution.

17 I gave taxr.ai a try after seeing it mentioned here and wow - it actually worked amazingly for my backdoor Roth situation! I uploaded my 1099-Rs from the last three years and it immediately identified that I had been reporting my conversions incorrectly. The system specifically highlighted that distribution code 2 was correct (not B like my accountant thought) and showed me exactly where my previous returns went wrong. It even generated a completed Form 8606 showing my correct basis calculation across multiple years. Turns out I'd been paying tax on money that should have been tax-free! I've already filed amendments for the previous two years and will save over $4,000 in taxes I shouldn't have paid. Just wanted to come back and share since this thread helped me find a solution.

21 I know exactly how frustrating it is dealing with conflicting professional advice! After my CPA made a similar mistake on my backdoor Roth, I spent weeks trying to get someone at the IRS to confirm the correct handling. Called over 15 times and couldn't get through to a human. Finally used https://claimyr.com to get through to an actual IRS agent (there's a demo video at https://youtu.be/_kiP6q8DX5c that shows how it works). The IRS agent confirmed exactly what others here are saying - code 2 is correct for a backdoor Roth conversion from a traditional IRA, and Form 8606 absolutely must be filed. They also explained the process for amending my return to add the missing form. Was totally worth the time to get an official answer straight from the IRS instead of trying to guess who was right between my advisor and CPA.

3 I take back what I said! I was super skeptical about Claimyr but decided to try it yesterday out of desperation. After three failed attempts calling the IRS myself about my Backdoor Roth issue, I used the service and got a callback within an hour. Connected directly to an IRS tax law specialist who not only confirmed code 2 is correct but also walked me through exactly how to file Form 8606 with my amended return. The agent explained that many tax preparers confuse the codes because Backdoor Roth conversions aren't explicitly covered in basic training. They even emailed me the specific IRS publication sections that address this! Saved me hours of frustration and potential penalties. Sometimes being wrong feels pretty good when it solves your problem.

14 Just wanted to add something important - the 8606 form is absolutely critical for Backdoor Roth conversions regardless of what code is on your 1099-R. I've been doing backdoor Roth conversions for 7 years and here's what I've learned: 1) Form 8606 establishes your "basis" in your traditional IRA, which is essential for tax-free conversion 2) Without it, the IRS assumes your entire conversion is taxable 3) There's a $50 penalty for not filing it, but the bigger issue is potentially paying taxes twice on the same money 4) You need to file it EVERY year you do a conversion The distribution code debate is secondary to making sure you have proper documentation with Form 8606. I'd recommend filing an amended return ASAP.

9 Edward Jones is 100% right on this. I'm a tax preparer and see this confusion all the time. Code 2 means "Early distribution, exception applies" which is EXACTLY what a backdoor Roth conversion is - it's technically an early distribution but exempt from the 10% penalty. Code B is for "Designated Roth account distribution" which is for EMPLOYER plans like 401ks, not IRAs. Your CPA has mixed up retirement account types. I'd suggest: 1. File an amended return ASAP with Form 8606 2. Consider finding a new CPA who understands Backdoor Roth conversions 3. In the future, specifically tell your tax preparer about any special situations like this