Recharacterization of Roth IRA to traditional IRA and subsequent conversion from traditional IRA to Roth IRA

[ynwa]

Hi Turbo Tax Community,

I made a Roth IRA contribution of $500 on 04/01/2022 & another $500 in on 04/02/2022( Total Roth IRA contribution: $1000) for tax year 2022. I realized that my MAGI is above Roth contribution limit and hence I re-characterized $865.21 (due to loss) from the invested Roth IRA funds to a newly opened traditional IRA account on 02/09/2023.  On 02/17/2023, I contributed $5000 to traditional IRA for tax year 2022. I then converted the whole money in traditional IRA account to Roth IRA ($5000 + $865.21 ) on 02/19/2023. I haven't received a 1099-R for any of these transactions from Vanguard as it happened in 2023.

Should I report the re-characterization and conversion in 2022 tax return ? If so what amount should I enter.

Thank you so much and I really appreciate any help.

[DanaB27]

You will enter the recharacterization and the traditional IRA contribution on your 2022 tax return. And TurboTax will create the 2022 Form 8606 with the basis on line 14. This basis will be entered next year on your 2023 tax return when you enter the conversion (which happened in 2023 and therefore belongs on the 2023 tax return).

On your 2022 tax return

To enter the traditional IRA contribution and recharacterization:

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” and "Roth IRA"
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed to the traditional IRA ($5,000)
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. Answer ‘Yes” on the “Roth IRA Contribution” screen
11. Answer “No” to “Is This a Repayment of a Retirement Distribution
12. Enter the Roth contribution amount ($1,000)
13. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount of $1,000 (no earnings or losses) on the next screen.
14. 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.
15. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (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)

Next year on your 2023 tax return

To enter the Form 1099-R conversion: 

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?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[ynwa]

Thank you so much @DanaB27