Retirement tax questions

---

@richardk19 wrote:

1) Am I correct that for my 2021 Turbotax explanation statement, I'm writing: "The original $6000 contribution plus $500 earnings were recharacterized." I'm writing this because, as you said, the entire IRA (not individual funds in the IRA) had an increase in value of $500 attributed to the $6,000 contribution.

 

2) To clarify, this is for a 2021 excess ROTH contribution recharacterized in March 2022 but before I have sent in my 2021 taxes. Does this change how I report the recharacterization and earnings?

 

3) Am I reporting on my 2021 taxes that I converted this $6500 from the traditional IRA into a backdoor ROTH IRA in March 2022? If so, how do I note this on my 2021 tax forms? Or do I enter the information about my backdoor ROTH IRA conversion on my 2022 taxes?

 

Thanks @macuser_22 and @dmertz !

 

 

 

---

#1)  That is correct.

#2)  No,It was a 2021 contribution so it is reported on yiur 2021 tax return only.    It is the explanation statement that actually report it to the IRS.   When you receive a 1099-R next year with a code R you can ignore it as a code R is ignored by TurboTax and the 1099-R is only issued to inform the IRS.

#3 Noting goes on 2021 tax since the conversion was done in 2022,  Be sure that when entering the 2021 recharacterization that if the question comes up that you say you want the now Traditional IRA contribution non-deductible if not automatically non-deductible because income too high to deduct.   Either way there should be a 8606 form as part of 2021 tax return with the non-deductible amount on line 1 and the total of all nondeductible contribution on line 14.   You will need the line 14 amount for reporting the backdoor Roth next year.

Also be sure you understand how the so called "Backdoor Roth" works.  Since you already have $500 earnings and many more, then it will be partly taxable.

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor" tax free. [Congress has been talking about changing the tax law to prohibit this but has not yet done so.]

That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

Otherwise the conversion will be partly taxable.