How to report Excess contribution withdrawn after IRA recharacterization to Roth IRA by mistakes for 2 years?

[evanku]

Hello:

I made a mistake in my retirement contributions for the past 2 years and I’m not quite sure how to file my tax returns correctly. I intended to do a IRA to Roth IRA conversion but ended up mistakenly recharacterizing it as a Roth IRA, which resulted in withdrawing all the contributions in 2023, as I'm not qualified for the Roth IRA contributions.

My situation is a bit complicated with the timing. I believe I need to amend my 2021 and 2022 tax return, and I hope to get some expert help from the community.

Here’s what happened:

(1) Year 2021 IRA Contribution:

I tried to do an IRA to Roth IRA conversion since my income exceeds the MAGI limit. So on Apr 14 2022, through an investment manager at Bank of America (BofA), I contributed $6,000 (non-deductible) to IRA for the year 2021. However, on May 5 2022, the manager mistakenly used the recharacterization form to “convert” the money to Roth IRA (my bad for not realizing the difference at that time). 

And I filed my 2021 tax return on Apr 18 2022, so I’m not even sure if this recharacterization is valid or not since it’s after the tax due date.

In Jan 2023, I received a 2022 1099-R Form (IRA - Box1: $6,000, Box 2a: $0, Box 7: R). When filing my 2022 tax return, TurboTax told me to amend my 2021 tax return, which puzzled me. 

Then, I realized that the whole thing was a mistake. So, I talked to another advisor in BofA and was advised to withdraw the contribution and any gain/loss out to avoid further penalties.

On Sep 20 2023, I withdrew a total of $6,237.76 from the Roth IRA, which includes $214.98 of short-term capital gain + $22.78 of interest.

This happened before my 2022 tax return due date (Nov 16 2023) because I’m a California resident and the IRS has postponed the due date to Nov 16 for 2023 because of winter storms.

This year in Jan 2024, I received a 2023 1099-R Form (Roth IRA - Box 1: $6,237.76, Box 2a: blank, Box 2b: Taxable amount not determined checked, Box 7: J).

2) Year 2022 IRA Contribution:

Without realizing the difference between conversion and recharacterization, I stupidly made the same mistake.

On Feb 27 2023, I made a contribution of $6,000 (non-deductible) to IRA for the year 2022. Then, on Jun 23 2023, I mistakenly recharacterized it to Roth IRA. After realizing the problem, the $6,000 was withdrawn from the Roth IRA, on Sep 8 2023. 

Notice the entire sequence of events happened before tax due date (Nov 16 2023) though.

In Jan 2024, I received 2 relevant 1099-R Forms: [1] IRA (Box 1: $6,000, Box 2a: $0, Box 7: R); [2] Roth IRA (Box 1: $6,000, Box 2a: $0, Box 7: JP).

Overall 1099-R Forms received:

1. 2022 1099-R for IRA (Box1: $6,000, Box 2a: $0, Box 7: R, IRA/SEP/SIMPLE)
2. 2023 1099-R for Roth IRA (Box 1: $6,237.76, Box 2a: blank, Box 2b: Taxable amount not determined checked, Box 7: J)
3. 2023 1099-R for IRA (Box 1: $6,000, Box 2a: $0, Box 7: R, IRA/SEP/SIMPLE)
4. 2023 1099-R for Roth IRA (Box 1: $6,000, Box 2a: $0, Box 7: JP)

Here are my questions (sorry for the long list):

1. For my 2023 tax return, I entered all three 2023 1099-R forms; however, I’m a bit confused how to correctly report the early withdrawal for both the year 2021 and 2022 contributions. I think I’ll need to pay some penalties for the contribution but I'm not sure how it’s reflected in TurboTax.
2. For the 2022 contribution, since the IRA contribution, recharacterization and withdrawal all happened before the tax due date (Nov 16 2023). Does it mean I’m exempted from any penalty and tax since the original contribution was non-deductible? Do I simply put down $6,000 under “Corrective distributions made before the due date of the return”, I think?
3. For the 2021 contribution, the recharacterization (May 5 2022) happened after the 2021 tax due date (Apr 18 2022), it is still considered as 2021 contribution and hence the 2021 amendment, right?!
4. For the withdrawal of $6,237.76 (from 2021 contribution), which includes $214.98 of short-term capital gain + $22.78 of interest, in that 1099-R Form, I should put down $237.76 in Box 2a, keep Box 2b checked and put $214.98 in Box 3, is that correct?
5. I did make stock transactions for the $214.98 short-term capital gain; however, I did not receive any 1099-B recording, I guess it’s because the transactions happened under the Roth IRA account. Do I need to manually add it to the 1099-B Form in order to pay for the income tax? Or should I request the custodian (BofA) for a 1099-B Form for the transaction? Where will the income tax and penalties be shown?
6. For the 2021 contribution and early distribution with a gain, it seems like I’ll need to pay a 6% penalty of the contribution ($360) and a 10% penalty of the gain ($21), on top of the income tax of the total gain of $237.76. And I should pay this in my 2023 return, is this correct? Or should it be in the 2021 return?
7. How do I amend the 2021 and 2022 tax returns correctly? Do I only report the 1099-R for recharacterization in the amendment and then report both early withdrawals in my 2023 return? Or I need to report both the recharacterization and early withdrawal for each year (2021 and 2022) instead?
8. How do I cross check my entries? I should look into Form 5329 and Form 8606 for Federal return, and Form 3805P for State (CA) return, correct?
9. How do I make sure I won’t need to pay any further penalty in TurboTax since I’ve withdrawn all the contributions and gain from 2021 and 2022?

Apologize for the long post and many questions! I really appreciate your professional and expert help!

Thank you very much!