i accidentally contributed to Roth IRA last year, but i want to change to traditional to reduce my income? How

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I accidentally contributed to Roth IRA last year, but I want to change to traditional to reduce my income? How?

I already purchased stocks with that 5K contribution and it's mixed with 7K contribution from 2019 that's also in stocks.

DanaB27Answer

Employee Tax Expert

If you contributed to a Roth IRA in 2020 but would like to be able to benefit from the traditional IRA deduction then you can recharacterize your 2020 contribution. You will have to contact your bank before April 15 and tell them you want to recharacterize your Roth contribution as a traditional IRA contribution.

Please be aware that the deduction of the traditional IRA may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. Please see IRA deduction limits for details.

Please follow these steps to enter the recharacterization in TurboTax:

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
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (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.

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DanaB27

Answer

Employee Tax Expert

Please follow these steps to enter the recharacterization in TurboTax:

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
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (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.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

choosybeanAuthor

Level 2

Thanks! I read something here about I need to calculate the gains/loss. I've actually lost the money bc the stock market but how do I calculate that? I read I need to tell my bank how much including the gains and loss to recharacterize.

macuser_22

Alumni - Champ

@choosybean wrote:

Thanks! I read something here about I need to calculate the gains/loss. I've actually lost the money bc the stock market but how do I calculate that? I read I need to tell my bank how much including the gains and loss to recharacterize.

When you tell the bank to recharactorize it, then the bank must calculate the earnings (or loss) and also transfer that to the other IRA. When you enter it in the IRA Contribution interview, the amount recharactorized must be the exact same amount as the original contribution, not counting any gain or loss. The gain (or loss) you account for in your explanation statement that TurboTax will ask for.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**