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Remember: Report 2010 Roth Conversions on 2012 Returns

By: Deanna Scott

March 8, 2013

Congress enacted a law several years ago that offered taxpayers with individual retirement accounts (IRAs) a deal that looked a lot like those "same as cash" offers you see in ads for furniture and appliances. This law became effective January 1, 2010, lifting income restrictions on Roth IRA conversions, and allowing high-income taxpayers to convert to a Roth for the first time. It also gave IRA owners the choice to delay the taxes on 2010 conversions by opting to split the income from the conversion between 2011 and 2012.

It’s no big surprise that a lot of taxpayers decided to defer the taxes on their Roth conversions. IRS is not likely to send a reminder out, but if you are among those who opted to split the income from your conversion, and you included half the taxable amount on your 2011 return, you will now need to include the deferred half on your 2012 return.

Keep in mind that the income from the conversion has been reported to the government, so if you fail to report it, you're probably going to get a letter from the IRS. If you can't pay the taxes on your 2010 conversion, the worst thing you can do is fail to file your return. That will trigger interest and possibly steep failure-to-file penalties. Like those "same as cash" offers, failure to pay by the deadline — which is April 15 — could be a big mistake.

So you will need to dig up your old 2010 return to find out where you stand with this. Assuming you opted to postpone your tax bill, the amount of income you previously deferred will show up on Form 8606 of your 2010 tax return. Your Roth conversions in 2010 from traditional IRAs must be listed on 2012 Form 1040, Line 15b, or Form 1040A, Line 11b. Conversions from your employer’s retirement plans, including in-plan rollovers to designated Roth accounts, need to be reported on Form 1040, Line 16b, or Form 1040A, Line 12b.

To close with a little good news on this topic:  Some taxpayers who also received Roth distributions in either 2010 or 2011 may be able to report a smaller taxable amount for 2012. The IRS gives details on this; see the discussion under 2012 Reporting of 2010 Roth Rollovers and Conversions on IRS.gov. In addition, worksheets and examples can be found in Publication 590 for Roth IRA conversions and Publication 575 for conversions to designated Roth accounts.