Corrected excess Roth IRA contribution for 2020 before filing tax, need help in capturing 1099-R information w/o having the actual 1099-R

[VA_Is_ForLovers]

Hi,

Earlier in March, I realized that I mistakenly contributed 6000$ each for I and my wife to Roth IRA instead of Traditional IRA in 2020. We both submitted requests to recharacterize with Fidelity and got that done. We will file our tax tomorrow, the last day. Since the recharacterization request was done in 2021, Fidelity will send us the forms 1099-R in Feb 2022. 

Fidelity has sent us the document confirming how much gains we had and were taken out from Roth and put in Traditional IRA in recharacterization. 
I need some help in capturing 1099-R under Wages and Income- Retirement Plans and Social Security even though I don't have actual 1099-R by using the letters from Fidelity.

1. Specifically, I have entered and saved for now the gross distribution for my case as 7,827.68 in Box 1 and 1,827.68 in box 2a for Taxable amount

2. What should I enter in box 7? My guess is 8 (Excess contributions) & J(Early Distribution of Roth IRA), is that right?

3. What else do I enter after that? Not having an actual 1099-R makes it difficult to guess what other information would I get in the actual form next year

Any help is much appreciated!

RVA Guy

[DanaB27]

You do not create a 1099-R since you recharacterized the contribution.

You will enter the recharacterization when you enter the contribution to the Roth IRA

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 “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. 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.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

In 2022 you will get a 2021 1099-R with code R-Recharacterized IRA contribution made for 2020  for the recharacterization and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your 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 will be zero. You can only report the recharacterization as mentioned above. You can ignore the 2021 1099-R with code R when you get it in 2022.

Please delete the 1099-R you created:

1. Click on "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R”
3. Delete the 1099-R

[VA_Is_ForLovers]

Danab27,

Thank you for your super quick response! This helps a lot but I have one last question - where do we show the gain from the recharacterization and pay tax on it?

And you are right, we do intend to convert all this recharacterized amount to Roth IRA through backdoor entry, although after the tax returns are filed tomorrow; so will go through your instructions to make that happen.

Thanks,

RVA Guy

[DanaB27 · Accepted solution]

The gain from the recharacterization is not taxable. You only have to enter the earnings in the explanation statement.

But the gains will be taxable when you convert the amount in 2021. Here are the steps for next years 2021 tax return to enter the 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 "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" since you had any nondeductible contributions in a prior year.
7. Answer the questions about the basis and value.