Retirement tax questions

It seems you entered something wrong that you get the excess contribution warning. You should not have an excess contribution from the recharacterization. You will only enter the earnings on the explanation statement, in the other fields please enter only the contribution amount.

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount %7,000
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $7,000 (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.

You will get a 2021 1099-R with code R for the recharacterization which belongs on the 2020 tax return. But you can ignore since you reported the recharacterization.

Did you withdraw anything yet? If you did, then the earnings will be taxable income in your 2020 return and if you are under 59 1/2 you will have to pay the 10% early withdrawal penalty on the earnings.

You will get a 2021 1099-R in 2022 with codes P and 1 (if you are under 59 ½, otherwise it will be P and 7). This 1099-R will have to be included on your 2020 tax return and you have two options: 

• You can wait until you receive the 2021 1099-R in 2022 and amend your 2020 return or
• You can report it now in your 2020 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in the 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2020?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2 enter the earnings
8. Box 7 enter P and 1 (if you are under 59 ½, otherwise enter P and 7)
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.