Get your taxes done using TurboTax

You will need to enter your 2020 contribution and recharacterization on your 2020 return. Please see How do I amend my 2020 return? if you didn't enter it on the original 2020 return.

You had $8,602 transferred to the traditional IRA because you had gains of $2,602 on the $6,000 contribution. These need to be moved with the original contribution when you make a recharacterization.

To verify, you contributed $4,000 for 2020 in 2020 and $2,000 for 2020 in 2021 and therefore made a total contribution of $6,000 for 2020?

If yes please verify that you entered/ follow these steps to report your recharacterization on your 2020 tax return. You will enter it when you enter your 2020 Roth contribution on your 2020 tax return:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution
5. Enter the Roth contribution amount of $6,000
6. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
7. TurboTax will ask for an explanation statement where it should be stated that the original $6,000 plus $2,602 earnings were recharacterized.
8. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since 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 warning and then a screen saying $0 is deductible)

A 2021 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2020 and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your return. You can only report it as mentioned above. 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.

TurboTax will create Form 8606 and you will have a $6,000 basis on line 14 to carry over to 2021.

On your 2021 tax return, you will enter the Form 1099-R for the conversion:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. 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”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs