2019 return - Reporting recharacterization completed in 2020

Forum|Forum|6 years ago
February 20, 2020
2 replies
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I made an excess Roth IRA contribution in 2019. In February 2020, I requested my financial institution recharacterize the entire contribution as a nondeductible traditional IRA contribution. When I called the IRS to ask how to report this, I was directed to form 8606 but am confused on how to continue. The appropriate section says: "You made a contribution to a Roth IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a traditional IRA. Report the nondeductible traditional IRA portion of
the recharacterized contribution, if any, on Form 8606, Part I. Don’t report the Roth IRA contribution (whether or not you recharacterized all or part of it) on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2019, include the amount transferred from the Roth IRA on Form 1040 or 1040-SR, line 4a; or Form 1040-NR, line 16a. If the recharacterization occurred in 2020, report the amount transferred only in the attached statement, and not on your 2019 or 2020 tax return."

I can't tell from this: do I report the recharacterization as a nondeductible traditional IRA contribution when I enter in my IRA contributions OR do I just include the statement saying that the recharacterization happened and leave the IRA contribution section blank?

Not A Product Question

macuser_22

Alumni - Champ

For a recharacterization done in 2020 you will receive a 2020 1099-R next January to report it.

If you know that the account trustee will in fact be reporting it as a recharactorization with a 1099-R with a code R in box 7 and the amount recharactorized plus any earnings in box 1 then you can report it now on your 2019 tax return. Otherwise wait for the 1099-R next year and amend 2019 to report it.

A 2020 1099-R with a Code R means a recharactorized in 2020 for a 2019 contribution.

A 2020 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2019 and recharactorized in 2020) will tell you that you must amend 2019.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2019 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2019 tax return.

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.

The proper way to report the recharacterization and earnings which is to enter the 2019 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2019 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

**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.**

Jdcasares129Author

Level 2

Where does form 8606 come in then? And why does it say at the end that I shouldn't report the recharacterization in either my 2019 or 2020 taxes if I complete the recharacterization in 2020?

macuser_22

Alumni - Champ

@Jdcasares129 wrote:

Where does form 8606 come in then? And why does it say at the end that I shouldn't report the recharacterization in either my 2019 or 2020 taxes if I complete the recharacterization in 2020?

The 8606, as in the end of the intrusion in the box above, reports the new Traditional IRA contribution as a non-deductible contribution if you choose not to deduct it or your MAGI is too high to deduct.

It does not say not to report the recharacterization. It says that a 2019 contribution that was recharacterized in 2020 can ONLY be reported on a 2019 tax return - the year that the contribution was made.

But you will not receive the 1099-R that reports it to you until 2021 which means that you would have to amend 2019 in 2021 in order to report it unless you have the necessary information to report it now even though you do not yet have the 2020 1099-R so that you will not need to amend when you do receive the 1099-R.

**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.**

Gunner33

Level 2

@macuser_22 I'm in a similar situation and looking for advice. I still haven't completed by 2019 tax returns and have an extension till Oct 15,2020. I'm going to do a Recharacterization from Traditional IRA to ROTH IRA. What is the best way for me to put the information in Turbo tax so that I don't have to later file an ammended 2019 Tax return ? Here's my situation :-

I had put $6K in my existing Traditional IRA in April 2020 and had specified it towards 2019 tax year and also made the selection as 'deductible' on Merrill Edge website. It was my assumption at that time that this would be a 'deductible' contribution when I file my 2019 tax returns. Now, I realized since both my wife and I have 401K/retirement plan at work, it makes us ineligible to get Traditional IRA tax deduction.

So, now, I have opened an ROTH IRA with the same provider (Merrill) and plan on doing a Recharacterization FROM Traditional IRA to ROTH IRA for this 6K along-with the small earnings. This is all for 2019 taxes. I did check and we do qualify for ROTH contribution based on our joint income.

Based on my reading your prior replies, it seems I'll receive 1099-R in Jan/Feb 2021 for the recharacterization that I'm going to perform but I do know my exact contributions and gains and can enter them correctly in my 2019 tax returns w/o 1099-R. Does this make sense and can I avoid filing an ammended 2019 return if I file my initial 2019 tax return this way or some other way ?

dmertz

Level 15

Gunner33, simply enter the original $6,000 traditional IRA contribution in the Traditional and Roth IRA Contributions section and on the next page where TurboTax asks, "Did You Change Your Mind?," answer Yes and indicate that you recharacterized $6,000. Do not enter on this page the gain-adjusted amount transferred despite the title of that page incorrectly implying otherwise. TurboTax will next prompt you to prepare an explanation statement describing the recharacterization where you should show the date and amount ($6,000) of the original traditional IRA contribution, the date and amount ($6,000) of the recharacterization, and the gain-adjusted amount transferred.

The required explanation statement takes the place of the code R 2020 Form 1099-R that you will receive near the end of January 2021, so you can just ignore that Form 1099-R other than to keep it in your records. If you choose to enter this Form 1099-R into 2020 TurboTax next year, TurboTax will remind you that the recharacterization was reportable on your 2019 tax return, which you already will have done so there will be no need to amend your 2019 tax return.

barbel617

Level 2

I have the same situation as Gunner33, just want to confirm, when recharacterizing a non-deductible traditional ira contribution to a roth ira contribution, 8608 will not be needed when amending the return, right? But is it suggested to just file one for the roth ira so that IRS can keep track of my roth ira basis? Is it necessary? Thank you so much for your reply.