Amending 2020 Tax Return

[jpalanca69]

I had to recharacterize a Roth IRA contibution that I made in 2020 because my income for that year ended up too high to qualify to contribution to Roth.  When I downloaded the 1099-R from the brokerage into Turbo Tax 2021, it told me that I may have to amend my tax return for 2020.

So I started amending that return in TurboTax 2020.  When I got to the "Explain Your Recharacterization" page, I was surprised to see that all the information had already been filled in.  The dates appeared to be correct, but neither the Amount Recharacterized nor the Transferred Amount matches the gross distribution in the 1099-R.  Am I supposed to accept the pre-populated amounts, or am I supposed to change them?

If I'm supposed to change them, should Amount Recharacterized be the original amount that I contributed to the Roth IRA, i.e., 7K?  And should the Transferred Amount be the gross distribution in the 1099-R?

When I tried just accepting the amounts as pre-entered, TurboTax 2020 told me there was no difference between my original return and the amended one.

[DanaB27]

Please be aware that, you can only report it as mentioned below. A 1099-R with code R will do nothing to your return. Therefore, you can ignore the 1099-R with code R. 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.

You will enter the recharacterization when you enter the contribution to the Roth IRA

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount of $7,000
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $7,000 (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $7,000.00 plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a screen saying $0 is deductible)

[jpalanca69]

Thank you for the response, but I'm still not clear on what I need to do.

After I entered "IRA Contributions" in the Search box, I don't see a "Jump to IRA Contributions" link or button.  I just see a bunch of matching articles/posts.

Maybe this is because I'm using TurboTax Desktop instead of the online version?

[ThomasM125]

In the desktop version of TurboTax, you need to start in the Deductions and Credits section, then choose Retirement and Investments, then Traditional and Roth IRA Contributions. Start or update the section and choose the Roth IRA option. Then, follow the instructions provided by @DanaB27

[jpalanca69]

One last question (I hope).  Do I do this in TurboTax 2021 or 2020?  The contribution was made in 2020, but I recharacterized it in 2021, before I filed my taxes for 2020.  I ask this because TurboTax 2021 was telling me that I may need to amend my 2020 returns because of the recharacterization.

[JillS56]

If you are amending a 2020 return, the amendment is prepared in 2020 tax software.  Amendments are always prepared in the software for the tax year you are amending. 

[jpalanca69]

The amended 2020 returns shows that I'm due additional refund because of the recharacterization, which seems counter-intuitive to me.  I was expecting to owe the IRS some money because of it.

I just want to make sure this is correct before I file it.

Thank you for your help and patience.

[ThomasM125]

It is possible you were penalized for an excess contribution to your ROTH IRA in 2020, so when you amended the return to show the recharacterization, that may have removed the penalty and reduced your tax.

You can look at form 5329 in 2020 to see if you have a penalty. It would show on line 25 for a ROTH IRA. If you withdrew the money before the due date of your 2020 tax return the penalty would be abated.

[citizenkoehn]

Thomas, 

I seem to be in the same boat as the OP, and I'd like to verify with you that if the 2020 contributions were withdrawn (or recharacterized) by the time I submitted my 2020 taxes, then the 6% penalty was avoided? I was thinking I was going to have to amend my 2020 taxes (because TurboTax said I might need to when I entered my 2021 1099s) to account for my excess contributions, but now I'm not sure.

[DanaB27]

Yes, if you withdrew the contribution plus earnings or recharacterized the contribution by the due date of the 2020 tax return then you do not need to pay the 6% penalty for 2020.  

If you withdrew it make sure you enter it on the penalty screen that you withdrew it during the IRA contribution interview.

Yes, your earnings from the withdrawal of excess contribution for 2020 will be taxable in 2020. Therefore, you have to enter the 2021 Form 1099-R with code PJ on your 2020 tax return.

If you have 2021 Form 1099-R with code R and you reported the recharacterization as mentioned above then you can ignore Form 1099-R.

@citizenkoehn

[citizenkoehn]

Thank you, Dana! Now I've got a few follow-up questions 🙂 

My "withdrawal" was strictly a recharacterization.

Neither of my 2021 1099-Rs had code PJ. Do I manually enter one of my 1099-Rs with that code?

The 2021 1099-R for my Roth IRA has code R, and shows the gross distribution as my contribution + earnings, but the taxable amount is $0, and neither box of Line 2B is checked. You are saying this is the 1099-R that I don't need to enter?

The 2021 1099-R for my Traditional IRA shows my gross distribution () and Taxable Amount being the same. This 1099-R has code 2, and both boxes of Line 2B are checked.

I did not receive any 1099-Rs in for the 2020 tax year.

[DanaB27]

No, if you didn't withdraw the excess then you won't get Form 1099-R with codes PJ and you do not need to create one.

Yes, you can ignore Form 1099-R with code R since it won't change anything on your return and won't show up on Form 1040.  

Yes, you will have to enter Form 1099-R with code 2:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”

If you converted the funds to a Roth IRA:

1. Enter the information from your 1099-R
2. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
3. On the "Review your 1099-R info" screen click "continue"
4. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
5. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@citizenkoehn