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Retirement tax questions
You cannot recharacterize a 2020 contribution on your 2021 tax return, even if it was made in the year 2021. That would have had to be done by the due date of a 2020 extension, October 15, 2021.
You can convert your existing Traditional IRA into a Roth for 2020. It has essentially the same effect, but it is not entered into the IRA contribution screen.
Enter your characterization of $7,000 as you did before. For the $7,000 from the 2020 contribution, this will be marked on your 1099-R as a conversion when you enter the distribution from the Traditional IRA:
- Search for 1099-R and select the Jump to link in the search results.
- Continue through the screens to import or enter your 1099-R form.
- Confirm if the IRA/SEP/SIMPLE box is checked.
- When asked Did you move this money from a 401(k) to a Roth 401(k) select Yes, I moved the money to a Roth and Continue.
- Enter that $7,000 was converted to a Roth. The other $7,000 was already re-characterized on the other screen.
When it all shakes out, you should not be paying any over-contribution penalties or any early withdrawal penalties. You will have to pay tax on the income since you are converting it to a Roth which is funded with after-tax dollars.