23/24 Excess Roth contribution removed, and then converted back to ROTH...8606 problems

[dliberty12]

Hello all and thanks in advance for the help. This situation seems odd but I can make it work on the paper 8606 form but not turbo tax. 

-Contributed 6500 to Roth IRA early 2023(for 2023)

-Contributed 7000 to Roth IRA early 2024(for 2024)

-When filing 2023 taxes in March '24 discovered I earned too much for Roth contribution and requested a recharacterization of both deposits into traditional IRA. 

-Received Distributions of 7291 and 7387 into traditional IRA May/June 2024 (total 14,678)

-then requested Roth conversion of all 14678. completed nov '24 (it earned some $) 

-now I have 3 1099 R's. 

1)7291 - 0 taxable amt, code R

2)7387 - 0 taxable amt, code N

3)14,867 - taxable amt unknown, total distribution. 

-Turbo tax keeps calculating my taxable amt in 1040 line 4b as 7,867.

My understanding is that my 2023 basis for nondeductible IRA should be 6500, and 2024 should be 7000. leaving a taxable amt of 1367. How do I get this entered properly in TurboTax? 

On a paper 8606 If I put line 1)7000 and 2)6500, and line 😎 14867 the taxable amt comes out to 0 

I have not yet filed an amended '23 return with the distribution code R. Or a 8606. do I need to?

Thanks again. 

[dliberty12]

8606 line #8, not sunglasses emoji face. 

[DanaB27]

You should have reported the recharacterization of the 2023 contribution on your 2023 return and made it nondeductible. Then you should have a 2023 Form 8606 with a basis on line 14 which will be entered on your 2024 return. 

If you didn't enter the recharacterization on your 2023 return then you will need to amend the 2023 return. Please see How do I amend my federal tax return for a prior year?

Note you do not need to enter the Form 1099-R with code R on your 2023 return since it doesn't make any changes on your 2023 return. You can only report the recharacterization with the steps below.

You will enter the recharacterization when you enter the contribution to the Roth IRA (on your 2023 and 2024 return):

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “Roth IRA”
6. Answer ‘Yes” on the “Roth IRA Contribution” screen
7. Answer “No” to “Is This a Repayment of a Retirement Distribution
8. Enter the Roth contribution amount 
9. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
10. 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.
11. 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.

To report the conversion on your 2024 return:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R for the conversion
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen add Form 1099-R with code N
11. On the "Your 1099-R Entries" screen click "continue"
12. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
13. Answer the questions about the basis from line 14 of your 2023 Form 8606 (should be $6,500) and the value of all traditional, SEP, and SIMPLE IRAs

[dliberty12]

Sorry but this did not work. Does form 8606 on turbotax automatically populate the basis on line 2 from the previous years return? this form does not seem to be populating correctly. 

-I have answered the question 'have you made and tracked non deductible contributions' as yes and entered my basis of 6500. Line 2 on my 8606 is still blank. 

-lines 6-12 are all left blank. line 17 says enter the amount from line 11 which is lank but is populating as 7000. 

-I answered that I have converted the entire 14'867 to ROTH and 8606 line 8 is still blank, but line 16 shows 14867. 

[DanaB27]

To clarify, do you have a * next to line 13?  If you have a * next to line 13 then TurboTax is using the Taxable IRA Distribution Worksheet to calculate the nontaxable portion and lines 6 through 12 of Form 8606 will be blank. See Pub 590-B.

Usually the basis from the previous year is carried over to line 2 of Form 8606 but it can easily be deleted when clicking the wrong button. 

I like to take a closer look why your basis entry doesn't show up on line 2 of Form 8606. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number and add @DanaB27 . This will allow us to open a copy of your return without seeing any personal information.  

The instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number and add @DanaB27 . This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

[dliberty12]

-yes there is an * on line 13. 

-ok thank you @DanaB27 , token number is 1297793

as I understand it my form 8606 should read:

1 ) 7000

2 ) 6500

3 ) 13500

4 ) 0

5 ) 13500

6 ) 0

7 ) 0

8 ) 14867

9) 14867

10) x0.908

11) 13499.34

12) 0 

13) 13499.34

14 ) .66

15a ) 0

15b ) 0

15c ) 0 

16 ) 14867

17) 14867

18) 0 

thanks again. 

[DanaB27]

I reviewed your return. You had indicated in the Easy Guide that you withdrew money from an IRA due to excess contributions made in 2023 or previous year. 

You will need to edit a few entries in the IRA contribution interview:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Continue until the "Enter Excess Amount" screen and enter "1"
4. Answer "Yes" on the "Excess Contribution Withdrawn"
5. Delete the entry on the "Enter Amount Withdrawn" screen and click "Back"
6. Click "Back" until you are on the "Enter Excess Amount" screen. Delete the entry here and then continue.
7. On the "Let's Find your IRA basis" screen select "Easy Guide"
8. Continue until the "Any of These Apply" screen select "I filed Form 8606..." and deselect "I withdrew money from an IRA..."
9. On the "Report Basis From Form 8606" screen enter "7,000" and continue
10. On the "Your IRA Basis Results" edit the entry under "IRA Basis of December 31, 2023" back to "6,500" and delete the entry under "Excess Contribution Amount Withdrawn before 2024"

Note, line 17 is $13,500 and line 18 is $1,367. Any gains before the conversion will be taxable.