It depends. Here is how recharacterizations and conversions work in TurboTax.
- Recharacterization: When you recharacterized your Roth IRA contribution to a Traditional IRA, the earnings ($500 in your case) are treated as if they were earned in the Traditional IRA. This means the $500 is not taxable at the time of recharacterization. You should receive a 1099-R with a code "R" in Box 7 for the recharacterization, which is informational and does not directly affect your taxable income.
- Conversion: When you converted the Traditional IRA back to a Roth IRA, the taxable amount is based on the total value converted minus any basis (non-deductible contributions). Since the amount converted was $7,400 and your original contribution was $7,000, the $400 in earnings will be added to your taxable income for 2024.
TurboTax Entries:
- Enter the original Roth IRA contribution under "IRA Contributions."
- Indicate that the contribution was recharacterized and provide the details (e.g., $7,500 recharacterized amount).
- Enter the 1099-R for the recharacterization. TurboTax will ask for an explanation statement, where you can note the original contribution, the recharacterized amount, and the earnings.
- Enter the 1099-R for the conversion. TurboTax will calculate the taxable amount ($400) based on the information provided.
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