Retirement tax questions

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@fleuver11 wrote:

Hi @macuser_22 , in the case where I believe my income might be too high and I shouldn't have been allowed to contribute to the Roth IRA this year originally, am I allowed to treat this as a recharacterization? I am to fill out only 1 of the 2 different forms (recharacterization vs. removal of excess).

 

Based off your response, if it's a recharacterization and they move the earnings along with the original contribution to the traditional IRA, does that mean the earnings will not count towards the $6K limit?

 

Thanks in advance!

 

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I am assuming that this was a 2021 contribution and not a 2020 contribution made in 2021.   You will have until the due date of the 2021 tax return (Apr 15, 2022) to remove or recharactorize a 2021 contribution.

Correct.    The earnings are treated as if they were were earned in the Traditional IRA.

When you do your 2021 tax return next year it would be entered like this.

The proper way to report the recharacterization and earnings which is to enter the 2020 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.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2020 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.