Amending Form 5329 to $0 using e-filed Form 1040-X?

[cparke3]

I filed Form 4868 for the automatic 6-month filing extension in April, then filed my return on May 17.  Now it's still prior to Oct. 15, and I need to make a change.

I originally filed the Form 1040 with Form 5329 showing a 6% excise tax on an excess contribution to a Roth IRA because my MAGI was above the limit.  However, I've since learned that was unnecessary, and I have corrected the issue by recharacterizing the contribution as a Traditional IRA nondeductible contribution instead (Form 8606 added).

So now the question comes up, can I e-file this amended return?  Because Form 5329 now shows $0, will it even be transmitted with the amended Form 1040-X? (ordinarily needed to demonstrate my claim to a refund of the excise tax)  How do I include other supporting evidence with the amended return e-filing to show that the recharacterization was actually processed?

[macuser_22 · Accepted solution]

You just enter the recharacterization in the IRA contribution section as below.    Your explanation statement is all you need.   The IRS will receive a copy of the 1099-R when issued.

It is not necessary to amend until you receive the 1099-R next year.

A 2021 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2020 and recharactorized in 2021) will tell you that you must amend 2020.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2020 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2020 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2020 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2020 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

[fanfare]

"It is not necessary to amend until you receive the 1099-R next year."

If you wait, you will find that the 1040-X e-File window has closed.

Unless the tax software gets a major upgrade to e-File prior year amendments.

I wouldn't count on that happening.

[cparke3]

There also is the consideration that the "Filed pursuant to section 301.9100-2” provision for filing an amended return within 6 months of the due date to change an election, if needed in this case, would expire if I waited until next year.

Furthermore, given how long Amended Returns can take to process, particularly these days, I'd rather get my $360 (6% of $6,000) back sooner rather than later and would prefer to file the amended return now.

[macuser_22]

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@cparke3 wrote:

There also is the consideration that the "Filed pursuant to section 301.9100-2” provision for filing an amended return within 6 months of the due date to change an election, if needed in this case, would expire if I waited until next year.

Furthermore, given how long Amended Returns can take to process, particularly these days, I'd rather get my $360 (6% of $6,000) back sooner rather than later and would prefer to file the amended return now.

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You misunderstand the provision.   It is to the time limit to remove the excess, not to amend.  Amend now if you wish and if you know how to report it.    (You know what code  the 1099-R will have in box 7 and box 1 and 2a).