How to report re-characterization of Roth IRA to Traditional IRA, and then backdoor Roth IRA Contribution?

[alicemail]

In Dec-17, I directly rolled over a prior employer's 401k to a Roth IRA (and understand that I will need to pay tax).  I received 1099-R's as a result, and the taxable amount is entered on my 1040 line 16b.

In Dec-17, I also contributed additional $5,500 (post-tax) to a Roth IRA. I do not have any other IRA accounts outside of current employer's 401k.  In 2018, due to Roth IRA income contribution limitations, I realized I should not have contributed the $5,500 to Roth in 2017, and re-characterized the $5,500 sitting in my Roth IRA to a traditional IRA account at a loss of $258 (so $5,242).  A few weeks later I then did a backdoor Roth contribution of $5,464 (as the $5,242 had gained since then). How should I report this in Turbotax? In the Recharactization Explanation form, I entered the amount recharacterized = $5,500 and "the Amount Transferred (Recharactization plus earnings/ losses) = $5,242.  Is this correct?  Is the Recharacterization form even needed?  Thanks!

[macuser_22]

Yes the recharacterization in the IRA contribution section is needed because that is what creates the 8606 reporting the non-deductible Traditional IRA contribution.   The amount recharactorized is the actual amount of the original Roth contribution minus any loss $5,242.   You cannot recharacterize more that what was moved.

This so-called “back-door Roth”  method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

Enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

 Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved.  Choose you converted it to  Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2017.     (Usually zero unless you also made a 2016 or earlier non-deductible contribution).  The 2017 recharactorized contribution is already on the 8606 line 1, so do not enter it again here.

Enter the 2017 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 15a of them 1040 form and a zero taxable amount on line 15b  if you did it right.

[alicemail]

Thank you macuser.  I really appreciate your help!  For the question "if you have made any non-deductible contributions" ...I answered "No."  If that is the case, then on my 1040 line 15a and 15b would it make sense that both are $0 (blank)?  Also, I wasn't sure where I was supposed to "Enter the 2017 year end value of your Traditional IRA a "0" (zero)."  Could you please elaborate?  Thank you again!

[macuser_22]

I added some screenshots to the answer box above using your data as I understand it.  If you can't read the 8606 I can post it in 2 larger screenshots.

[alicemail]

Thank you again macuser!  I can read the screenshots, so I appreciate it.  To confirm, for the first screenshot where you say to enter the 1099-R, since the distribution happened in 2018, I did not receive a 1099-R form.  Should I just fill in the 1099-R as you had in your screenshot (after filling in the payer info)?  Another question is on Form 8606-T line 8, it asked the amount converted from traditional to Roth in 2017.  Since I technically converted in 2018, not 2017, should I still go ahead and write the $5464 or would I write $0 and enter that amount on the 2018 tax return?  Thank you!