How do I recharacterize a recharacterized Roth IRA contribution back to Roth IRA contribution in TurboTax?

[Louise35]

Hi,

In 2024, I recharacterized my Roth contribution to traditional IRA and then recharacterized it back to Roth IRA:

1. I contributed $8000 to Roth IRA in 2024
2. later, I recharacterized my Roth contribution to Traditional IRA, as I thought my MAGI exceeded the limit. The amount of the recharacterization is $8300 (contribution + gains)
3. Later, I recharacterized the 1st recharacterization from traditional IRA back to Roth IRA. The amount of this 2nd recharacterization is $8100 ($200 investment loss to the 1st recharacterization $8300 )

How do I recharacterize a recharacterized Roth IRA contribution to Roth IRA contribution in TurboTax? How to enter these two recharacterizations in TurboTax? Are they taxable?

Thanks!

[DanaB27 · Accepted solution]

To confirm, did you request a recharacterization from traditional IRA to Roth IRA (code N or R on Form 1099-R) or made a conversion from traditional IRA to Roth IRA?

If you made two recharacterizations then you would have to enter a Roth IRA contribution directly and print and mail the return to attach an Explanation Statement.

If you converted the traditional IRA to Roth IRA then you would follow these steps below.

 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 ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. 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.
9. 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.
10. 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 enter the Form 1099-R for the 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 "Review your 1099-R info" screen click "Continue" after you added all Form 1099-R.
6. Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[Louise35]

Thanks for the reply! Yes it was a recharacterization from traditional IRA to Roth IRA with distribution code N on form 1099.

You mentioned in case of the two recharacterizations, I have to print and mail the return to attach an Explanation Statement. Can I workout around with below steps to fill out the Explanation Statement in TurboTax and file my return electronically from TurboTax?

1.enter the Roth IRA contribution directly on “Enter your Roth IRA contribution” screen

2.on “Amount Switch from a Roth To a Traditional IRA” screen, enter a non-zero amount, just for TurboxTax to open the “Roth IRA explanation statement” form for me.

3.complete the explanation statement

4.back to the “Amount Switch from a Roth To a Traditional IRA” screen, change the amount to zero, so I have zero Roth recharacterization entered.

5.Seems that TurboxTax does not delete The Explanation Statement form completed in step 3 after step 4. The explanation stmt shows up as “Additional information from 2024 federal tax return” under "All official forms required for filing" when I look those up to print.  

Will above workaround work? Does TurboTax include the Explanation Statement if this workaround-version of return is filed electronically using TurboTax app?

[DanaB27 · Accepted solution]

Yes, if you see the “Additional information from 2024 federal tax return” under "All official forms required for filing" then your workaround worked  and you can e-file your return.