Recharacterization of IRA to Roth IRA

[valataxman]

Hi,

I contributed 4000 to my IRA account at my bank on 03/18/2021 for the year 2021(mistakenly), then I contributed 2000 to IRA account for the year 2020 on 03/22/2021 and 4000 on 05/16/2020 for the year 2020 before filing my taxers. I want to recharacterize my 2020 contribution of 6000 to Roth and amend my 2020 return. I don't qualify for IRA deduction. The recharacterization form at my bank allows me to only recharacterize for a year, so I am confused how to go about this? Any suggestions would be helpful. 

[Critter-3]

Ok ... first amend the 2020 return to add the non deductible IRA contributions which will produce a form 8606 reporting the basis.   

Then convert the 2020 contribution amount to the ROTH in 2021.  The non deductible portion of the 2020 IRA will show on the 2021 form 8606 and if the year end value of all your  traditional IRAs is zero then only the earnings converted will be taxable so do the conversion asap. 

[valataxman]

Thanks for the response. I did report 6000 while doing my taxes for the year 2020. I do see 6000 reported as non-deductible IRA in Form 8606 in my 2020 Tax returns. 

I would like to recharacterize as I know I can do it but since I contributed another 4000 towards 2021, I am not sure how to go about answering this question in my banks recharacterization request form: How much is the gain or loss attributable to the contribution?

My total IRA contribution is 10000 of which 6000 is for 2020, 4000 for 2021. So, Can I just enter 60 percent of my IRA account's gain towards 2020 contribution?

[macuser_22]

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@valataxman wrote:

Thanks for the response. I did report 6000 while doing my taxes for the year 2020. I do see 6000 reported as non-deductible IRA in Form 8606 in my 2020 Tax returns. 

I would like to recharacterize as I know I can do it but since I contributed another 4000 towards 2021, I am not sure how to go about answering this question in my banks recharacterization request form: How much is the gain or loss attributable to the contribution?

My total IRA contribution is 10000 of which 6000 is for 2020, 4000 for 2021. So, Can I just enter 60 percent of my IRA account's gain towards 2020 contribution?

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You have until the due date of the 2020 tax return to recharactorize (May 17, 2021 this year) or the extended due date (October 15, 2021) if you either filed an extension or filed your 2020 tax by May 17 (which gives you an automatic extension to recharactorize,)

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.

The bank should issue you a 2021 1099-R with a box 7 code R.

This must be reported on an amended 2020 tax return.