Help: Multiple 1099-R forms and need help with "Tell us the value of your Traditional IRA" page

[tyler18640]

I need assistance with the "Tell us the Value of your Traditional IRA" page. Also, the 8606 doesn't seem to look right, but here is our situation.

- February 2024: My wife changed employers. She had a 401(k) at the job she left.

- April 2024: She rolled over the 401(k) to a Vanguard "Rollover IRA" (traditional IRA). This triggered a 1099-R. 

- August 2024: She did a Roth conversion, transferring all the funds in the Vanguard "Rollover IRA" (traditional IRA) to a Roth IRA. This triggered an additional 1099-R. 

- September 2024: We directly contributed $1,000 to the Roth IRA. 

- January 2025: We realized our Modified AGI exceeded the limit to contribute to a Roth IRA, so we did a "recharacterization" of the $1,000 contribution (plus earnings of $114, adding up to $1114) back to the Traditional IRA above. 

Technically, the value of her Traditional IRA on December 31st, 2024 was zero. However, in Jan 2025, we recharacterized from Roth to Traditional. That $1000 contribution was post-tax, so I want to make sure it's properly showing up as nondeductible on the 8606. 

I am having trouble correctly inputting this into TurboTax. I've added the 1099-Rs (two of them) in the income section, but the "Tell us the value of your traditional IRA" is not very clear. 

"Value of spouse's Traditional, SEP, and SIMPLE IRAs on December 31, 2024": $0?

Outstanding Rollovers: $0

Outstanding Recharacterizations: -- Do I put $0? -- OR -- do I put $1000 (contribution that was recharacterized? -- OR do I put the $1114 (contribution plus earnings)? 

[dmertz · Accepted solution]

The $1,000 that was recharacterized from Roth to traditional after year-end is referred to as an outstanding recharacterization and is treated as if the funds had been in the traditional IRA at year end.  On the page where TurboTax asks for your year-end balance, TurboTax also ask for the amount of any outstanding rollovers or recharacterizations and will automatically combine these values for reporting on Form 8606 line 6.

[tyler18640]

Thank you for the quick reply. But I do have a few follow up questions. 

If the “outstanding recharacterization” gets shown as the value of the IRA at year end, should it include the earnings that contribution made? In other words, should the Outstanding Rechararacterization that I input in TurboTax be $1000 (just the contribution) or $1114 (the total amount transferred back from Roth to Traditional)?

The other issue I’m having is understanding my current Form 8606, lines 13-15. The goal is to have us convert the recharacterized contribution ($1k + earnings) via “Backdoor” Roth conversion in 2025. But the 8606 isn’t showing the full $1,000 as nondeductible, so I am wondering how this will impact us next year. 

As described above, we had pre-tax funds ($2,400) from a 401(k) rolled over to a Traditional IRA, then converted to a Roth IRA. At that moment, the Traditional IRA was empty. In a separate later month, we also made a REGULAR $1,000 contribution to the Roth. At year end, traditional was Zero balance and Roth was ~$3400. In January we had to recharacterize that $1000 regular contribution back to the Traditional due to AGI limits. The pre-tax funds (from the 401k & Roth conversion) and post-tax funds (nondeductible contribution) were never actually in the Traditional IRA simultaneously. But I know the recharacterization makes it seem like it they were there all along. So, the 8606 shows many calculations and numbers that I don’t fully understand, making it seem like the pro-rata rule applies and messes up my basis. Can anyone explain or help? Thank you. 

[dmertz]

"If the “outstanding recharacterization” gets shown as the value of the IRA at year end, should it include the earnings that contribution made?"

I was intentionally ambiguous about that since I'm not sure.  As you indicated, in this case the amount recharacterized is $1,000 but the amount transferred was $1,114.  I doubt that the IRS would care much about which value you choose to enter since the difference between the two doesn't affect the calculation too much.  I would probably go with $1,114.  Since she will convert all traditional IRA funds in 2025, whatever basis is carried over from line 14 of the 2024 Form 8606 to line 2 of the 2025 Form 8606 will get  entirely applied to the 2025 Roth conversions.

If the entire $1,000 is not being treated as nondeductible, that implies that some amount is being reported on Schedule 1 line 20 as deductible.  TurboTax offers you the option of treating deductible amounts as nondeductible which would move the amount from Schedule 1 line 20 and add it to the amount already on Form 8606 line 1.

Under the circumstances, I suspect that TurboTax will use Worksheet 1-1 from IRS Pub 590-B instead of doing the calculation entirely on Form 8606.  This would be evidenced by TurboTax placing asterisks next to lines 13 and 15 of Form 8606.