Retirement tax questions

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@richardk19 wrote:

Hi Everyone,

I've never found myself in this situation before and would really appreciate any help/suggestions.

 

I made a $6000 contribution to my 2021 tax year ROTH IRA in March of 2021. I am working on my 2021 taxes now (March 2022), and my MAGI is too high (for the first time) for me to have been able to contribute to a ROTH IRA in 2021. I spoke to my financial institution (where the ROTH account was created) today, and they have recharacterized my excess contribution into a traditional IRA (I've never had a traditional IRA before). I plan to convert the traditional IRA that I just created into a backdoor ROTH as soon as the money is available to convert, in a few days.  ( My Traditional IRA contribution is non-deductible.)

 

The $6,000 that I put into the ROTH IRA account in March of 2021 is actually only worth $5500 now, so there are no earnings that I will need to pay taxes for - I lost about $500.

 

I completed all of the steps on Turbotax to recharacterize my Roth contribution as a traditional IRA contribution, including the Roth IRA Explanation Statement.

 

My question is: Do I need to take any other steps on my 2021 taxes before I file on April 15th? I know that I will receive a 1099-R for the recharacterization (from excess ROTH contribution to traditional IRA) and another 1099-R for the conversion from the traditional IRA to backdoor ROTH IRA, but I will not receive these 1099-Rs from my financial institution until early 2023.

 

Do I need to "create" a 1099-R and enter it in my 2021 taxes for the recharacterization of the $6000 excess ROTH contribution into a traditional IRA? If so, which figures should I use for the 1099-R? Or do I need to wait until I receive the paperwork in early 2023 and amend my 2021 taxes at that point (which I'd like to avoid)?

 

I'd like to do whatever I need to do now, and avoid amending tax returns if possible, but I'm confused if I need to "create" a 1099-R form for my 2021 taxes or if I only needed to complete the steps in Turbotax (below).  I had no earnings from the excess ROTH contribution - I actually had a loss.

 

Thanks for any help and advice!

 

Here are the steps I followed in Turbotax:

To recharacterize your Roth contribution as a traditional IRA contribution in TurboTax, follow these steps:

1. Sign in to your TurboTax account and open (continue) your return
2. Select Search in the top right of your screen. Search for IRA contributions and select the Jump to link in the search results
3. Select Roth IRA and select Continue
4. Answer Yes on the screen Did you make a Roth IRA contribution for 2021? 
5. Answer No on the screen Is This a Repayment of a Retirement Distribution? 
6. On the next screen, enter your Roth contribution amount
7. Answer Yes on the screen Switch from a Roth To Traditional IRA?
8. On the next screen, Tell Us How Much You Transferred, enter the excess contribution amount (don't include earnings or losses)
9. On the screen Roth IRA Explanation Statement, enter the original amount plus the amount of earnings or loss that were recharacterized.

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Nope. That is it.  But be sure that you told TurboTax that you recharactorized the exact amount as your original contribution not accounting for any gain or loss.    If a gain or loss then that should be part of the explanation. And if a gain it would be moved to the Trad IRA and no tax paid until you take a distribution.

That should have produced a 2021 8606 form showing the now Traditional IRA contribution on line 1,3 and 14 as a non deductible contribution.    You can ignore the 1099-R for the recharactorization which shroud have a code "R" in box 7 when it comes.   The code R 1099-R will be ignored by TurboTax since it's only purpose it to for the IRA custodian to tell the IRS - it is simply information to you and does not get entered.   The only way for yiur to report it is as you did - your explanation is how you report it.

You will need the 2021 8606 line 14 amount for the backdoor Roth.