Retirement tax questions

To confirm you are doing a conversion (moving money from traditional to Roth IRA) and not a recharacterization (moving money to Roth and pretending it never was contributed to the traditional IRA but only directly to Roth IRA)? In both cases, the $0.88 won't cause an overcontribution because your direct contribution of $6,500 to the traditional IRA was within the limit for 2022 (assuming you are 50 or older).

If you are doing a conversion, you will enter a nondeductible contribution to the traditional IRA on your 2022 tax return (if made for 2022) and the conversion will be reported on your 2023 tax return (the $0.88 would be taxable income in this case).

To enter the nondeductible contribution to the traditional IRA for 2022 on your 2022 return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed $6,500
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion made in 2023 on your 2023 return: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" since you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2022 Form 8606 ($6,500) and the value of all traditional, SEP, and SIMPLE IRAs

If you are doing a recharacterization, you will start with the traditional IRA contribution and tell TurboTax that you changed your mind, please follow these steps:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the traditional IRA contribution amount of $6,500
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses) of $6,500
8. TurboTax will ask for an explanation statement where it should be stated that the original $6,500.00 plus $0.88 earnings were recharacterized.

You will get Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2022 and this belongs on the 2022 return. But a Form 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore Form 1099-R with code R when you get it in 2024. The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

[Edited 2/1/2023 | 11:55 pm PST]

@goyal_raj