Excess Roth IRA Contribution - Recharacterized as Traditional IRA, but still on Form 5329

[cjlee126]

I overcontributed to my Roth IRA in 2016. I thought I could contribute $5500, when I could only contribute $4110, which I meant I had an excess of $1390.

In March 2017, I transferred out this amount, plus some (per the advice of a Fidelity rep), and recharacterized $1468 of my Roth IRA as a traditional IRA.

For my 2017 tax return (prepared by TurboTax), I filed an excess of $1468 as excess on my Roth IRA on form 5329, and filed form 8606 on the $1468 amount as well, as a non-deductible contribution to my traditional IRA.

In 2018, when I was completely ineligible to contribute to my Roth IRA, this $1468 amount remained on my form 5329.

2 questions:
1) How come I have an excess amount in my Roth IRA, when I recharacterized this amount as a traditional IRA?
2) How can I go about removing this excess amount, now that I am ineligible to contribute to my Roth IRA so I can't use it as a future contribution?

Thank you!

[macuser_22]

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@cjlee126 wrote:

2 questions:
1) How come I have an excess amount in my Roth IRA, when I recharacterized this amount as a traditional IRA?
2) How can I go about removing this excess amount, now that I am ineligible to contribute to my Roth IRA so I can't use it as a future contribution?

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#1 - You did not enter the recharacterization properly in TurboTax on your 2016 tax return.   You recharactorized a 2016 contribution prior to the due date so it should be reported on your 2016 tax return with a 2016 8606 form.   No 5329 is required since there is no penalty.

  You should have entered the Roth contribution in the IRA contributions section and then answer the followup question then you moved the money to a Traditional IRA (recharactorized). That would have removed the Roth contribution and prepared the 2016 8606 form.

You probably should amend 2016 to do that and also amend  2017 to remove the carryover contribution and 5329 form.

You probably received a 2017 1099-R  2017  with a code R in box 7 (Recharacterized IRA contribution made for 2016 and recharactorized in 2017).  Entering that in 2017 will tell you that you must amend 2016.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2016 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 2016 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 2017 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 line 15a 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.

#2 - To get rid of the contribution that carried forward to 2018, go to the IRA contribution section, add a Roth contribution of nothing and click through the interview until it asks of you had a prior year excess.  Answer yes and then enter zero for the excess to remove it.

[cjlee126]

Thanks for the thorough instructions, @macuser_22! I've successfully amended my 2016 and 2018 return, but am struggling to remove the carryover amount on the 2017 return. I've entered in the excess amount, 1468.19 into box 1 as reported on my 2017 1099-R, box 2a taxable amount as 0, and code R - recharacterized IRA contribution made. I've entered in the total value of my Roth IRA at December 31, 2017 as reported by my custodian then (includes earnings). When I generate the amendment, I'm still getting form 5329 reporting the excess contribution as well as form 8606. How do I get rid of these forms? Thank you! 

[macuser_22]

As stated above, you do not enter the 1099-R with a code R anywhere.  

For 2017 to remove the excess contribution:

====== method 1 =====

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.

Answer yes you made a Roth contribution,

answer no it is not repayment,

do not enter ANY amount leave the amount box blank,

click through until yiu get to the excess contribution

answer YES, you have excess contributions,

enter 0 (zero) for the excess.

that should remove the 5329

======method 2  simpler ====

Switch to the forms mode and choose the "IRA Info Worksheet"

line 10 should show the carryover excess.

delete it  so the box is blank

that should remove the 5329

if the 8606 is still there, delete the form.

[cjlee126]

Thank you for the thorough instructions. I guess what I'm confused about is not entering the 1099-R in 2017 even though I received the form in 2018 for the tax year 2017.

[cjlee126]

I did follow your instructions and that did the trick - thank you!