Things to Tell Your Tax Preparer During Tax Season

Any time you get a 1099-R for a retirement plan transaction, make sure you give it to your tax preparer. The IRS gets copies of your 1099-Rs, so they need to be included on your income tax return. They cannot be ignored, even if they are for a non-taxable transaction. How will your tax preparer know it is a non-taxable transaction? You have to tell him or her.

Roth IRA Conversions

IRA conversions to a Roth IRA must be reported on Form 8606, even if you are converting only after-tax amounts and even if the funds go directly from your IRA to your Roth IRA. The IRA custodian will send you a 1099-R for the distribution because Roth conversions are treated as a distribution from the IRA and a contribution to the Roth IRA. IRA custodians do not track after-tax contributions so they are not going to show any after-tax amounts on the 1099-Rs they issue.

Non-Roth funds in an employer plan that go to a Roth IRA are also considered a Roth conversion, even if only after-tax funds go to the Roth IRA. The employer plan will issue a 1099-R for the distribution. If the plan funds go directly to the Roth IRA, the distribution code on the 1099-R is “G” which generally tells the tax preparer that this is a non-taxable direct transfer. In the case of a conversion to a Roth IRA, you have to let the tax preparer know that the return must reflect the Roth conversion.

Roth Recharacterizations

Many individuals think that if they convert to a Roth IRA and recharacterize in the same year, which results in a net zero income tax, that they can ignore this on their income tax return. While you don’t have to file Form 8606 to report your conversion, you still have to tell IRS that you converted and recharacterized by including a note on the income tax return. The instructions for this can be found beginning on page 3 of the instructions for Form 8606, available on the IRS website at, under Forms and Publications.

NUA Transactions

NUA stands for net unrealized appreciation. When a plan participant has highly appreciated shares of their employer’s stock in an employer plan, that stock can be distributed directly to the participant as part of a lump sum distribution and the participant pays income tax on the cost basis of the stock only. (If you have employer stock in an employer plan, consult with a knowledgeable advisor to make sure you meet all the qualifications for using NUA.) The 1099-R issued by the employer plan for the distribution will show the taxable amount of the distribution as being the total taxable balance in the plan. Be sure to tell your tax preparer that you want to use the NUA tax strategy to reduce your taxes otherwise you will end up paying the full income tax due on the amount of your NUA stock.


QCDs are qualified charitable distributions from IRA accounts. They were discussed more fully in last week’s post. The 1099-R from the IRA custodian will include any amounts directly transferred to a qualifying charity in the taxable amount shown on the form. There is no box to identify QCD transfers. Be sure to tell your tax preparer of your QCD transaction so that it is not included in your taxable income for the year.