Roth IRA recharacterization with loss

Forum|Forum|5 years ago
March 3, 2021
1 reply
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Hello,

I made a $6000 Roth IRA contribution in 2020, then realized 6 months later that I'm not eligible to contribute to Roth IRA due to income restriction. I recharacterized it to a traditional IRA. By the time I recharacterized it, the amount had decreased to $5811 due to the stock market decline in early 2020.

When I entered this to Turbotax, I was told that there will be a tax penalty on the $189 because I put in $6000 but only recharacterized $5811, making it look like the $189 was still left in the Roth IRA as excess contribution while in reality, this $189 was due to stock market loss. Am I entering the information incorrectly? Where should I clarify this on Turbotax or did I do the recharacterization wrong and really should have switched $6000 to traditional IRA no matter what?

I entered Roth Contribution: 6000

Amount switched from Roth to Traditional: 5811

Roth IRA Explanation Statement:

Date of original contribution: x/xx/2020

Date of recharacterization: x/xx/2020

Amount recharacterized: 5811

The amount transferred (recharacterization plus earnings or losses): 5810.98

Reason for the recharacterization: not eligible for roth contribution

Thanks a lot for your help

Best answer by DanaB27

No, you will enter also $6,000 for the transferred amount (recharacterized amount).

Please review these instructions:

Login to your TurboTax Account
Click on the Search box on the top and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “Roth IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount $6,000
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.