How to Structure and Report Recharacterization & Backdoor Roth

Forum|Forum|5 years ago
March 8, 2021
25 replies
111 views

So here is the timeline of events for my situation:

March 2020: I contribute $4,585 to Roth IRA for tax year 2019

May 2020: I realize that I contributed too much (MAGI was slightly higher than expected) so i recharacterize $240 from Roth to a newly created Traditional IRA

May 2020: I also contribute an additional $350 to the aforementioned newly created Traditional IRA

June 2020: I file my taxes with Form 8606 included. Line 1, Line 3, and Line 14 are all $590. Other than those three lines nothing else is filled out on this form.

Feb 2021: I receive a Form 1099-R for 2020 for $240 with a Box 7 value of "R"

Fast forward to today, I forgot to convert the $590 sitting in the traditional IRA into Roth so it's still sitting there.

I also intend to contribute the full $6,000 into a traditional IRA for tax year 2020 (but have not done so yet) and will backdoor this into my Roth.

Here are the questions I was hoping you guys could help me with:

1. In terms of tax reporting have I done everything correctly thus far?

2. Should I convert the $590 into my Roth before doing the $6,000 transaction or is the timing of this irrelevant?

3. What should my tax reporting look like for tax year 2020 (aka the tax return that i am working on right now)?

Thank you so much in advance!

Not A Product Question

JohnB5677

Level 15

1. In terms of tax reporting you have done everything correctly thus far.

2. You can convert the $590 and the $6,000 transaction into your ROTH together.

3. Your tax reporting for tax year 2020 will show deductible traditional IRA contributions that are recharacterized to a taxable ROTH conversion.

A backdoor Roth IRA allows you to get around income limits by converting a Traditional IRA into a Roth IRA. Contributing directly to a Roth IRA is restricted if your income is beyond certain limits, but there are no income limits for conversions.

Doing a backdoor Roth conversion is a two step process.

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jcs94Author

Level 2

Thanks for the response. One correction: my contributions to the traditional IRA were not deductible since my income was too high. Does that change anything?

Also, what about the fact that I put the $590 into the traditional IRA in 2020 but will not be converting that to Roth until 2021...how does that impact my reporting?

DanaB27

Employee Tax Expert

The 1099-R 2020 with code R belongs on your 2019 tax return but a 1099-R with code R will do nothing to your return. It seems that you already reported everything correctly in regards to the nondeductible recharacterization ($240) and nondeductible traditional IRA contribution ($350) on your 2019 tax return.

If you decide to contribute the $6,000 the the traditional IRA for 2020 then follow these steps on your 2020 return (you will enter the previous basis of $590 that was a contribution for 2019, see step 9):

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contributions before this tax year.
If you had a basis in the Traditional IRA before then enter the amount. (In your case $590)
On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

When you decide to convert the amount total amount in the traditional IRA to your Roth IRA in 2021 then on your 2021 tax return you will enter this:

Login to your TurboTax Account
Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
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”
On the "Your 1099-R Entries" screen click "continue"
Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis