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shouryab
Level 1

How to Report Roth contribution Recharacterization to Traditional IRA

So here is my situation:

In Jan 2021, I contributed $6000 to Roth IRA for tax year 2020

I soon realizized that I contributed too much (MAGI was higher than allowed for Rothcontribution) so i recharacterized the contribution from Roth to a newly created Traditional IRA.
During recharecterization, the total applicable earnings or loss for the computation period was $31.52 and the total amount recharacterized to Traditional IRA was $6,031.52.

I received a letter from my broker (Fidelity) mentioning that I will receive a 1099-R in Jan 2022 reflecting the recharecterization.
My is question is how do i reflect the recharecterization in my 2020 tax return in the mean time in turbo tax. Do i need to fill Form 8606 ?

1 Best answer

Accepted Solutions
DanaB27
Expert Alumni

How to Report Roth contribution Recharacterization to Traditional IRA

Yes, if you plan to convert the amount in the traditional IRA to a Roth IRA (backdoor Roth) then should make the contribution nondeductible and file Form 8606 to report the basis. TurboTax will create Form 8606 when you make the contribution nondeductible.

 

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 “No” to “Is This a Repayment of a Retirement Distribution
  6. Enter the Roth contribution amount $6,000
  7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount $6,000 (no earnings or losses)
  8. 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.
  9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if 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 and you only get a screen saying $0 is deductible)

 

Yes, you will get a 2021 1099-R  in 2022 with code R in box 7 and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your return. You can report  the recharacterization only like mentioned above. Therefore, you can ignore the 1099-R when you get it in 2022.

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1 Reply
DanaB27
Expert Alumni

How to Report Roth contribution Recharacterization to Traditional IRA

Yes, if you plan to convert the amount in the traditional IRA to a Roth IRA (backdoor Roth) then should make the contribution nondeductible and file Form 8606 to report the basis. TurboTax will create Form 8606 when you make the contribution nondeductible.

 

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 “No” to “Is This a Repayment of a Retirement Distribution
  6. Enter the Roth contribution amount $6,000
  7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount $6,000 (no earnings or losses)
  8. 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.
  9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if 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 and you only get a screen saying $0 is deductible)

 

Yes, you will get a 2021 1099-R  in 2022 with code R in box 7 and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your return. You can report  the recharacterization only like mentioned above. Therefore, you can ignore the 1099-R when you get it in 2022.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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