I've done quite some research here but still don't know how to report correctly given my situation below. Any help would be much appreciated!
In February 2020 I made a contribution of $6,000 to Roth IRA but treated it as 2019 contribution.
In March 2020, I recharacterized full contribution from Roth IRA to traditional IRA (trustee-to-trustee). Amount transferred was $5,500 due to a market loss of $500.
When filling out TurboTax, I did the followings:
- I selected that I had made contribution to Roth IRA for tax year 2019.
- I selected that I recharacterized to a traditional IRA.
- Amount contributed is $6,000
- Amount transferred is $5,500
- Reason was due to modified adj. income above the limit
After I did the above, TurboTax is now showing that I still made an excess contribution of $500, for which I will incur a 6% penalty for that amount every year thereafter. Then it asked me if I made any contribution withdrawal.
My questions are:
- Should I put "$500" or "$0" here for the withdrawal?
- Did I do anything incorrectly and if so how should I modify my answers above?
- Why am I paying a penalty when I have an unrealized loss when making the recharacterization transfer?
Thank you in advance for your help and advice.
