IRS Explains 2011 Reporting for 2010 Conversions to Roth Accounts

The IRS has provided guidance to taxpayers who transferred amounts to a Roth account in 2010 in a taxable transaction. Generally, these taxpayers must report half of the income in 2011 and half in 2012, unless the taxpayer elected to report the income in 2010.


2010 was the first year that taxpayers could transfer funds from a traditional individual retirement account (IRA) to a Roth IRA without restriction. To encourage taxpayers to take advantage of this opportunity, Congress provided a special benefit for taxpayers who created Roth accounts in 2010 and made a taxable transfer to the account. Instead of having to report all the income in 2010, taxpayers could defer reporting the income until 2011 and 2012, a welcome benefit for taxpayers who transferred large amounts to their Roth accounts in 2010.

Amounts transferred into a Roth account from another retirement account are taxable, although they are not subject to the 10-percent tax on early withdrawals. Taxes apply to:

  • Eligible rollovers from a retirement plan to a Roth IRA;
  • Amounts transferred from a non-Roth IRA to a Roth IRA (a conversion); and
  • An in-plan rollover of benefits in a retirement plan to a Roth account maintained by the same plan.