How to Structure and Report Recharacterization & Backdoor Roth

[jcs94]

I wish these forums had a function to quote other users posts so I could respond to you line-by-line. I will attempt to replicate that functionality by putting your comments in "italics":

"if you would enter it in your 2020 tax return TurboTax would tell you it belongs on the 2019 return." 

Ok I think that makes sense because I did indeed enter it on my 2020 tax return and I got this message "Looks like you may need to amend your 2019 return" <--that's exactly what you're referring to right?

"But a 1099-R with code doesn't do anything to your return when you enter it in 2019 and say it is a 2020 1099-R Form. It only gives the IRS information that a recharacterization happened."

Ok so basically since it doesn't impact my 2019 taxes one way or the other that's the reason why I do not need to bother amending my 2019 return, correct?

"Did you enter the full $590 as a traditional IRA contribution on your 2019 return?

Or did you enter $350 as directly contributed to the traditional IRA and then the $240 under Roth IRA contribution and then recharacterized with the steps above?"

I honestly don't fully remember since it has been nearly a year and my memory is a bit fuzzy. That being said, I think that I read somewhere that a recharacterization (from type A to type B) means you should treat it as if it was contributed to Type B all along...therefore I believe I entered the full $590 as a traditional IRA contribution on my 2019 return. I am looking at my 2019 return right now, so is there a way I can verify this information to make sure I am accurately describing to you how I did things last year?

[DanaB27]

Question 1: Yes, that is what I was referring to.

Question 2: Yes, since it doesn't impact your 2019 taxes one way or the other that's the reason why you do not need to bother amending your 2019 return.

Question 3: If did enter it as a recharacterization you can see that on the IRA contribution worksheet and there will be an explanation statement included with your return to explain the recharacterization. 

[jcs94]

Ok so to further complicate things (sorry!) I didn't use TurboTax last year, I used CreditKarma's free tax filing and I am not sure if they have the ability to include an "explanation statement" 

That being said, I have included screenshots from my 2019 return below. I believe the $590 on Line 11 of the 2nd page indicates I entered the full $590 as a traditional IRA contribution. Correct?

Page 1 of 2019 IRA Deduction Worksheet: https://www.screencast.com/t/E4v7MTXIu

Page 2 of 2019 IRA Deduction Worksheet: https://www.screencast.com/t/olMpzRPfNH

Page 1 of 2019 Form 8606: https://www.screencast.com/t/KsGUyORK

2019 Schedule 1: https://www.screencast.com/t/FzOYjdrKW

[jcs94]

@DanaB27  Bumping this thread (see my previous comment)

[DanaB27]

Yes, it seems that you entered $590 as a traditional IRA contribution and did not enter the recharacterization.

You can try if you can amend it with the program you used to get the explanation statement but other than that it will not change your return since you entered it as a traditional IRA.

[jcs94]

Thanks. So I have a few follow-up questions:

1. What are the rules for whether or not I need to amend my taxes? In my situation it seems like it will not have any impact on taxes owed...it's just a matter of the missing explanation statement. Does the IRS care about the missing explanation statement since it has zero impact on the actual taxes due?

2. Now that we've discussed some additional info, is your advice regarding this 2020 1099-R still to "Disregard it completely and do not include it on my 2019 OR 2020 returns" ?

3. If that is indeed still your advice, could you please explain the logic behind that? I would think the IRS would want to understand what the deal is with that $240...so wouldn't it be confusing to them if I just never report it on 2019 nor 2020?   Do they not care because it has $0.00 Box 2a (meaning none of the $240 is taxable)?

[DanaB27]

1. Yes, usually the rule is that you have to amend when forms change and/or it has an impact on your tax. In your case it will only change the added explanation statement but not your tax. Recharacterizations have to be reported and the only way to do this is creating the explanation statement. 

2. Yes, since when you enter this 1099-R with code R nothing gets carried onto the return. A 1099-R with code R just informs the IRS that the recharacterization happened. The only way to report it is to create that explanation statement.  

3. Yes, it wasn't taxable and a 1099-R with code R doesn't do anything to your return. The only way to report it is to create that explanation statement.  

[jcs94]

Ok thanks. So do you think I should bother trying to add that explanation statement to 2019 or just move on with my life?

[Cynthiad66]

I think you can move on with your life.  If additional information is needed you will have the opportunity to submit.

[jcs94]

@Cynthiad66  - Sounds good, thanks.

So while things are still fresh in my memory I wanted to take a crack at filling out Form 8606 for my 2021 taxes (i.e. the ones I will be working on 12 months from today). 

Here's what I've got: https://www.screencast.com/t/J1t8mEd9q

Does everything here look right?

[DanaB27]

Yes, your Form 8606 looks correct for 2021, you will just have to transfer it into the 2021 8606 Form.