Roth IRA conversions and recharacterizations
Qualifying Vanguard clients can contribute to a Roth individual retirement account. They can also convert assets to a Roth IRA from a non-Roth IRA (that is, a traditional IRA, SEP-IRA, or SIMPLE IRA). Here are some terms used in discussing Roth IRAs, along with brief explanations about how Vanguard will report certain IRA transactions for the 2016 and 2017 tax years:
If you have questions about 2014 recharacterizations, call us at 800-984-5931.
While our representatives are qualified to provide information about Vanguard funds and services, they aren't tax experts able to provide tax advice. We recommend you consult a qualified tax professional for specific guidance about your situation.
Vanguard reports contributions to all types of IRAs on IRS Form 5498, IRA Contribution Information. For tax year 2016 contributions, we'll mail Form 5498 to you in May 2017, so you have the document for your records. For tax year 2017 contributions, we'll mail Form 5498 to you in May 2018, so you have the document for your records.
When you request a Roth IRA conversion, assets are "distributed" from your non-Roth IRA and then rolled over into your Roth IRA. Vanguard will report conversions on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
The code on Form 1099-R, Box 7, is determined by your age at the time of the distribution. The number you'll see in the box will be either "2" or "7."
Note: The custodian making the conversion distribution is responsible for generating Form 1099-R.
Through a Roth recharacterization, you either change a contribution from a Roth IRA to another type of IRA or nullify a previous Roth conversion. It's as if the contribution or conversion never occurred in the Roth IRA.
Vanguard reports a recharacterization on Form 1099-R as a distribution from the Roth IRA and on Form 5498 as a contribution to the non-Roth IRA. For recharacterizations completed in 2015: In Box 7 of Form 1099-R, you'll see an "R" for a contribution or conversion made for 2015 and recharacterized in 2016 or an "N" for a contribution or conversion made for 2016 and recharacterized in 2016. Contributions and conversions for 2015 that are recharacterized in 2016 will be reported on 2016 tax forms, which will be distributed in 2017.
For recharacterizations completed in 2016: In Box 7 of Form 1099-R, you'll see an "R" for a contribution or conversion made for 2016 and recharacterized for 2017 or an "N" for a contribution or conversion made for 2016 and recharacterized in 2017. Contributions and conversions for 2016 that are recharacterized in 2017 will be reported on 2016 tax forms, which will be distributed in 2017. You can still recharacterize contributions or conversions for a tax year on or before your federal tax return filing deadline for that tax year, including extensions, even if you already filed your tax return. However, you may need to file an amended return for the tax year in which the original contribution or conversion was made.
If you made a contribution to a Roth IRA and later recharacterized it or made a Roth conversion, you can review the following IRS forms and publications, which provide guidance on how to report those transactions on your income tax return:
- IRS Form 8606, Nondeductible IRAs, and the related instructions.
- IRS Form 1040, U.S. Individual Income Tax Return, and the related instructions.
- IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).
IRS forms and publications are available at the IRS website, or by calling the IRS at 800-829-3676.
Report the proper totals
To complete your tax forms accurately, refer to your year-end Vanguard Portfolio Summary, which breaks out account distributions by type of transaction, instead of adding up and reporting the amounts shown on a Form 1099-R you receive from Vanguard. These totals may include multiple distributions between non-Roth and Roth IRAs.
Contact us for assistance
If you have questions, call us at 800-984-5931. While our representatives are qualified to provide information about Vanguard funds and services, they cannot provide tax advice. If your tax situation is complex or if you are uncertain about the interpretation of a specific rule, we recommend that you seek advice from a qualified tax professional.