Roth to Traditional IRA Recharacterization resulted in excess

[rcom2023]

I made $6000 contribution to Roth IRA during 2022. I realized that my income exceeded the limit to contribute to Roth IRA. I recharacterized Roth IRA to Traditional IRA (in Tax Year 2022) before filing my 2022 taxes. However, due to profit on the original $6000 contribution, my recharacterization was $7002. This resulted in excess contribution of $1002 to my 2022 Traditional IRA, which I just realized this now. I have received 1099-R from Vanguard (line 2a Taxable Amount is 0).

What do I need to do now? Should I move the excess $1002 contribution to 2023 Traditional IRA? Do I need to pay 6% penalty on the excess (for 2022) and do I need to amend 2022 return?

[ThomasM125]

It is possible you actually recharacterized only $6,000 of your ROTH IRA to the traditional IRA. The earnings of $1,002 may have been returned to you and not rolled into your traditional IRA. In that case, you would not have a penalty for excess contribution in 2022. I suggest you prepare an amended 2022 return and when asked how much you recharacterized to your ROTH IRA, enter the $6,000 if that is what happened and if you find your tax was unchanged then you will not have an issue.

[Edited 3/26/24 @ 10:35 AM PST] @rcom2023

[fanfare]

@rcom2023 

Be careful of "experts".

You do not have an excess contribution of $1,002.

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recharacterization: the original amount to the first IRA you report as contribution to the second IRA,

earnings move but are ignored.
You must use a trustee-to-trustee transfer before the tax return due date.
You will instruct trustee to calculate the allocable earnings.

report this on your tax return for the year during which the contribution was made.
Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA.

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If you are allowed a 2022 deductible contribution to IRA,

You have a choice of deducting $6,000 (Schedule 1 Line 20), or electing it to be non-deductible (Form 8606).

The latter would be useful for converting $6,000 back into your Roth IRA.