How does the growth on 2023 recharacterized stocks affect ROTH IRA backdoor conversion? Does having already done a backdoor conversion for 2024 complicate things?

[gloquev1]

So for the tax year 2023, I contributed $6500 to my Roth IRA without realizing I had exceeded the income limit. After that, I recharacterized the excess (plus its earnings) worth (in stocks, not cash) into a traditional IRA in 2024. Now, I'm looking to backdoor these funds back into my Roth IRA, but I'm feeling unsure and a bit worried about the implications of the growth on these stocks (particularly as it sits in my traditional IRA) before I do the backdoor process.

Also, I've already contributed $7000 into my traditional IRA for the tax year 2024 and completed the backdoor process to transfer it into my Roth IRA.

[DanaB27]

Any gains you have before converting will be taxable when you convert the funds.

You will enter the recharacterization when you enter the contribution to the Roth IRA on your 2023 tax return:

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" since 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 automatically and you only get a warning and then a screen saying $0 is deductible)

You will get a 2024 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2023 and this belongs on the 2023 return. But a Form 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the Form 1099-R with code R when you get it in 2025.

You will have a basis on line 14 of your 2023 Form 8606 which will have to be entered on your 2024 tax return next year. Please see How do I enter a backdoor Roth IRA conversion? for next year when you prepare your 2024 tax return.