Since you have code 7 in box 7, it means the bank processed a Distribution and a New Contribution rather than a Recharacterization. This is why you received a 1099-R with Code 7 (Normal Distribution).
Because the funds were moved immediately and you intended them to be Roth contributions all along, you can treat the 1099-R as a Rollover rather than income.
Follow these step to enter your 1099-R:
- Go to Wages & Income > Retirement Plans and Social Security > IRA, 401(k), 703(b) (1099-R).
- Enter the 1099-R exactly as it appears (Code 7 in Box 7).
- Continue through the follow-up questions. When asked "What did you do with the money?", select:
- "I moved the money to another retirement account (or returned it to the same account)."
- Then choose:
- "I rolled over all of this money." (Since the full $2,000 went into the Roth IRA).
- When asked if the money was rolled into a Roth IRA, say Yes.
After you have completed this, you can check your Form 1040, Line 4.
- Line 4a (IRA Distributions): Should show the $2,000.
- Line 4b (Taxable Amount): Should show $0 (or just the amount of any other actual distributions you took).
- The Word "Rollover": You should see the word "Rollover" printed next to Line 4b on the actual tax form.
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