I thought I'd gotten a handle on how to deal with an accidental excess Roth IRA contribution that I made in early 2021 (for tax year 2021) but now it's coming back to bite me preparing 2022 taxes.
Due to unexpected increase in income, I discovered while preparing 2021 taxes that I had made an excess Roth IRA contribution. I decided to just recharacterize the entire amount of the contribution ($7000) as a traditional IRA. I did this through Vanguard, and they instructed me to also withdraw an additional $301 in gains, which I put into the traditional IRA as well. (Due to having a retirement account through my job, I was not eligible to take a deduction for this traditional IRA recharacterization.)
I reported this recharacterization on my 2021 return by 4/15/2022. Because I took care of all of this by the filing deadline and reported it on my return, I thought I was all set. I did expect some kind of form from Vanguard showing an early withdrawal of the $301 gains with taxes and maybe a penalty. Instead, I recently got a 2022 1099-R from Vanguard that doesn't show the gains as a separate taxable amount but just part of the gross distribution. When I enter it in Turbotax, I get the message that I need to file an amended 2021 return, which I'd hoped to avoid by recharacterizing the contribution by the filing deadline.
What did I do wrong here and how do I fix it? I'm seeing now that there was an October 15, 2022 deadline by which I was supposed to file an amended 2021 return (again why, when I reported all of this on the original return?) and that I now have some additional amount I'm supposed to reduce any 2022 Roth IRA contribution by to "offset" the 2021 excess. That doesn't make sense to me, since I've already recharacterized the entire 2021 contribution as a traditional IRA contribution.
Fortunately, I didn't make any 2022 Roth IRA contribution yet, so at least I won't have to fix a potential excess for 2022 as well.
