Retirement tax questions

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@benjamingray7 wrote:

Thanks so much for the response, I really appreciate your help.  My income isn’t too high to contribute to a Roth directly so I’m not talking about a conversion.  I just realized that for 2019 I should have contributed to my Roth instead of the IRA for better tax benefits. I have only the traditional IRA and the ROTH, no SEP or SIMPLE.  The traditional IRA was rolled over from a company 401k from years ago and I didn’t touch it for years until 2018.  Sorry I’m trying to understand, it seems like I have two issues to deal with:

 

2018 – I contributed to my IRA with after-tax dollars for the first time in many years, but I didn’t designate it as being an after-tax contribution.  So I should submit form 8606 for 2018 and that’s all I need to do for 2018?

 

2019 – I changed my mind and want to re-characterize my IRA contribution into my Roth IRA. Afterwards I’ll re-file my 2019 taxes.  Because I originally entered this as a standard IRA contribution, my AGI will go up but when I run this change through Turbotax, it seems to only affect my state taxes (I owe a little bit as expected). My concern is that I received federal subsidy for health insurance for 2019 because of my low income, but there doesn’t seem to be any change with my federal return. Am I missing something?

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Then yes, if you can contribute to a 2019 Roth  you must tell the financial institution to recharacterize the Traditional IRA contribution to a Roth.    They will issue a 2020 1099-R with a code R next year that you can ignore if you enter it now.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2019 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2019 tax return.

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.

The proper way to report the recharacterization and earnings which is to enter the 2018 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.

For 2018, it is to late to recharacterize so if your MAGI allows a deductible Traditional IRA contribution then  you can either amend 2018 and take the deduction that will probably result in an additional refund, or file a 2018 8606 form making it non-deductible that will lower tax on future Traditional IRA distributions.