Retirement tax questions

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@omar23 wrote:

@DanaB27 Thank you for the detailed information. I have a similar case that will affect my 2021 return. In early 2021, I mistakenly contributed $6k to a Roth for year 2021, now I have earnings on that Roth contribution. Since I will exceed the income limit for a Roth contribution, I plan to recharacterize the $6k + earnings to a tIRA and then immediately do a backdoor IRA, all in 2021. Now, is the amount that is moved back to the Roth IRA (in the backdoor process) equal to the $6k plus earnings regardless of the taxes that will be paid on the earnings from the recharacterization or is it the $6k plus earnings minus taxes? And, what would be the steps in TurboTax to enter the information for these transactions?

Thanks,

 

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The proper way to report the recharacterization and earnings which is to enter the 2019 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 2019 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.

Note that when you do the Roth conversion (assuming that is the only Traditional IRA account you have) the earnings will become taxable at that point.