DATA-ENTRY EXAMPLES FOR ROTH IRAs Ultra/Tax 1040

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1 DATA-ENTRY EXAMPLES FOR ROTH IRAs Ultra/Tax 1040 Introduction... 2 Special notes on clients with IRAs... 2 Example 1 Traditional IRA converted to a Roth IRA... 2 Results... 3 Example 2 Traditional IRA with traditional IRA basis partially converted to a Roth IRA... 3 Results... 3 Example 3 Pension distribution converted to a Roth IRA with income spread over tax years 2011 and Results... 4 Example 4 Traditional IRA with basis converted to Roth IRA with current year traditional nondeductible and Roth IRA contributions... 4 Results... 5 Example 5 Recharacterization of a traditional IRA contribution to a Roth IRA contribution... 5 Results... 5 Example 6 Distribution from a Roth IRA with conversion basis that includes nondeductible traditional IRA contributions... 5 Results... 6 Figure 1: Example 1 Screen 1099R... 7 Figure 2: Example 1 Screen IRA... 8 Figure 3: Example 1 Form 8606, Part II... 9 Figure 4: Example 1 Roth IRA Worksheets Figure 5: Example 2 Screen 1099R, Unit Figure 6: Example 2 Screen IRA Figure 7: Example 2 Form 8606, Part I Figure 8: Example 2 Form 8606, Part II Figure 9: Example 3 Screen IRA Figure 10: Example 3 Form 1040, Page Figure 11: Example 4 Screen 1099R, Unit Figure 12: Example 4 Screen IRA Figure 13: Example 4 Form 8606, Part I Figure 14: Example 4 Form 8606, Part III Figure 15: Example 4 Traditional IRA Deduction Worksheet Figure 16: Example 4 Roth IRA Worksheets Figure 17: Example 5 Screen 1099R, Unit Figure 18: Example 5 Roth IRA Worksheets Figure 19: Example 6 Screen 1099R, Unit Figure 20: Example 6 Screen IRA Figure 21: Example 6 Form 8606, Part II and III Data-Entry Examples for Roth IRAs: UltraTax/1040 TL Copyright by Thomson Reuters. All rights reserved. Page 1

2 Figure 22: Example 6 Form 5329, Part I Figure 23: Example 6 Form 5329, Line Introduction This document contains several Roth IRA conversion examples and special notes about IRAs. These examples detail common scenarios and demonstrate which data-entry screens and fields are required for UltraTax CS to calculate the taxable portion of Roth IRA conversions as well as Roth IRA recharacterizations. Special notes on clients with IRAs When processing returns for clients who have IRAs, you may find it helpful to refer to the Form 8606 Nondeductible IRAs instructions and to IRS Publication 590, Individual Retirement Arrangements (IRAs). These items are available on the Internal Revenue Services website at IRS.gov. Frequently asked questions on individual retirement accounts You can obtain answers to questions on how to enter information for traditional and Roth IRAs. Choose Help > Help & How-To, enter Individual retirement accounts in the Search field, and click Individual retirement account FAQs (1040). Example 1 Traditional IRA converted to a Roth IRA In this example, John Smith converted his entire traditional IRA, for which John had no traditional IRA basis, to a Roth IRA in John received Form 1099-R showing a $10,000 distribution. 1. Click the Retirement folder, then click the 1099R tab. 2. Enter the client s 1099-R information in Screen 1099R (Figure 1). 3. Click the IRA tab in the Retirement folder. 4. Enter the taxpayer s IRA information in Screen IRA (Figure 2). 5. In the Roth IRA section, select 2 Converted ALL and received no traditional IRA distributions from the Conversion from traditional IRAs to Roth IRAs field for the taxpayer. Note: You must complete the Conversion from traditional IRAs to Roth IRAs field in Screen IRA in order for UltraTax CS to calculate the taxable portion of the IRA distribution. This field tells UltraTax CS which parts of Form 8606 need to be completed per IRS instructions. If this field is blank, UltraTax CS generates a diagnostic message indicating that you must complete this field. TL Page 2 Data-Entry Examples for Roth IRAs: UltraTax/1040 Copyright by Thomson Reuters. All rights reserved.

3 Results UltraTax CS completes and prints Form 8606, Part II (Figure 3) and the Roth IRA Worksheets (Figure 4). UltraTax CS proformas both the Roth IRA conversion and Roth IRA contributions basis forward to future years. The Roth IRA conversion and Roth IRA contributions basis are shown on the Roth IRA Worksheets. Example 2 Traditional IRA with traditional IRA basis partially converted to a Roth IRA In this example, Karen Campbell received Form 1099-R showing gross distributions of $20,000. From the $20,000 distribution, Karen converted $15,000 to a Roth IRA and took the remainder as a current-year taxable distribution. Karen s traditional IRA basis through the end of tax year 2009 is $4,000. Her traditional IRA value on 12/31/12 is $9, Click the Retirement folder, then click the 1099R tab. 2. Enter the client s 1099-R information in Screen 1099R (Figure 5). 3. Click the IRA tab in the Retirement folder. 4. Enter the taxpayer s IRA information in Screen IRA (Figure 6). 5. In the Roth IRA section, select 1 All other conversions from the Conversion from traditional IRAs to Roth IRAs field for the taxpayer. Note: You must complete the Conversion from traditional IRAs to Roth IRAs field in Screen IRA for UltraTax CS to calculate the taxable portion of the IRA distribution. This field tells UltraTax CS which parts of Form 8606 need to be completed per IRS instructions. If this field is blank, UltraTax CS generates a diagnostic message indicating that you must complete this field. Results UltraTax CS completes and prints Form 8606, Part I (Figure 7) and Part II (Figure 8), and the Roth IRA Worksheets. UltraTax CS proformas both the Roth IRA conversion and Roth IRA contribution basis forward to future years. The Roth IRA conversion and Roth IRA contributions basis are shown on the Roth IRA Worksheets. Note: If there is traditional IRA basis showing on Form 8606, line 14, and if only part of the $5,000 taxable distribution is being taxed, per Form 8606 instructions, you must allocate the beginning traditional IRA basis between the taxable portion of the Roth IRA conversion and the remaining traditional IRA value at year end. Data-Entry Examples for Roth IRAs: UltraTax/1040 TL Copyright by Thomson Reuters. All rights reserved. Page 3

4 Example 3 Pension distribution converted to a Roth IRA with income spread over tax years 2011 and 2012 In this example, Jessica Jones received a distribution of $30,000 from her pension plan in 2010, which was completely converted to a Roth IRA. Jessica did not take a distribution from her Roth IRA account in 2011 or Click the Retirement folder. 2. Verify the information that proforma d from the prior year in the 2010 Roth IRA section of Screen IRA (Figure 9). Results The $15,000 taxable in 2012 of the conversion is reported on Form 1040 line 16b (Figure 10), since Jessica has no other Roth IRA distributions. Example 4 Traditional IRA with basis converted to Roth IRA with current year traditional nondeductible and Roth IRA contributions In this example, Frank Williams received Form 1099-R showing a distribution of $40,000 that was converted to a Roth IRA in Frank also contributed $500 to a nondeductible traditional IRA and $2,500 to a Roth IRA in In this example, it is assumed that the $500 nondeductible traditional contribution was contributed after the Roth IRA conversion. Frank s traditional IRA basis through the end of tax year 2009 is $4, Click the Retirement folder, then click the 1099R tab. 2. Enter the client s 1099-R information in Screen 1099R (Figure 11). 3. Click the IRA tab in the Retirement folder. 4. Enter the taxpayer s IRA information in Screen IRA (Figure 12). 5. In the Roth IRA section, select 2 Converted ALL and received no traditional IRA deductions from the Conversion from traditional IRAs to Roth IRAs field for the taxpayer. Note: You must complete the Conversion from traditional IRAs to Roth IRAs field in Screen IRA for UltraTax CS to calculate the taxable portion of the IRA distribution. This field tells UltraTax CS which parts of Form 8606 need to be completed per IRS instructions. If you leave this field blank, UltraTax CS generates a diagnostic message indicating that you must complete this field. TL Page 4 Data-Entry Examples for Roth IRAs: UltraTax/1040 Copyright by Thomson Reuters. All rights reserved.

5 Results UltraTax CS completes and prints Form 8606, Parts I, II, and III (Figures 13 and 14); the Traditional IRA Deduction Worksheet (Figure 15); and the Roth IRA Worksheets (Figure 16). UltraTax CS proformas both the Roth IRA conversion and Roth IRA contribution basis forward to future years. The Roth IRA conversion and Roth IRA contributions basis are shown on the Roth IRA Worksheets. Example 5 Recharacterization of a traditional IRA contribution to a Roth IRA contribution In this example, Sean Seymour contributed $4,000 to a traditional IRA during After meeting with his preparer, Sean learned that his income was too high for his traditional IRA contribution to be deductible. Sean decided to convert his traditional IRA contribution to a Roth IRA, rather than making his traditional IRA contribution nondeductible. Sean received Form 1099-R showing a $4,235 recharacterization. 1. Click the Retirement folder, then click the 1099R tab. 2. Enter the taxpayer s IRA information in Screen 1099R (Figure 17). Results UltraTax CS completes and prints the Roth IRA Worksheets (Figure 18). Example 6 Distribution from a Roth IRA with conversion basis that includes nondeductible traditional IRA contributions In this example, Jimmy Jones, at age 53, received Form 1099-R showing a distribution of $33,000 from his Roth IRA. He converted $20,000 from a traditional IRA to a Roth IRA in 1998 and converted $10,000 in The 1998 conversion included $5,000 of nondeductible traditional IRA contributions. The 1999 conversion included $2,000 of nondeductible traditional contributions. Jimmy also made Roth IRA contributions of $2,000 for years 1998 and Click the Income folder, then click the 1099R tab. 2. Enter the taxpayer s IRA information in Screen 1099R (Figure 19). 3. Click the IRA tab in the Retirement folder. 4. Enter the taxpayer s IRA information in Screen IRA (Figure 20). Data-Entry Examples for Roth IRAs: UltraTax/1040 TL Copyright by Thomson Reuters. All rights reserved. Page 5

6 Results UltraTax CS completes and prints Form 8606, Part III (Figure 21). UltraTax CS completes and prints Form 5329, Part I (Figure 22). UltraTax CS completes and prints a statement supporting the calculation of Form 5329, line 1 (Figure 23). TL Page 6 Data-Entry Examples for Roth IRAs: UltraTax/1040 Copyright by Thomson Reuters. All rights reserved.

Figure 22: Example 6 Form 5329, Part I TL 25616 Page 28 Data-Entry Examples for

DATA-ENTRY EXAMPLES FOR PARTNER S AND SHAREHOLDER S BASIS WORKSHEETS UltraTax/1040

DATA-ENTRY EXAMPLES FOR PARTNER S AND SHAREHOLDER S BASIS WORKSHEETS UltraTax/1040 Introduction... 2 Forms and schedules... 2 Partner s and Shareholder s Basis Worksheets... 2 Example 1 Current-year loss