I contributed $6912 towards 2024 Roth IRA but was ineligible. In Jan 2025, I recharacterized Roth funds into traditional IRA & then did Roth conversion. How do I report?

[carpe_diem]

When I realized my MAGI made me ineligible for a Roth, I immediately recharacterized my 2024 Roth contributions + gains to a traditional IRA in, then converted to Roth IRA to complete a "backdoor Roth conversion." The recharacterization & conversion all happened in Jan/Feb 2025. My question is - am I still going to incur a tax penalty for originally being in excess $6912 for my Roth, or did the recharacterization solve that issue? How do I enter this on turbo tax?

[fanfare]

recharacterization: the original amount to the first IRA you report as contribution to the second IRA, earnings move but that is ignored.
You must use a trustee-to-trustee transfer before the due date April 15,2025 ( or Oct 15, 2025 if 1040 was timely filed or extended).
You will instruct trustee to calculate the allocable earnings.

report this on your tax return for the year during which the contribution was made.
Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA.
----
Upon reporting a Trad IRA contribution (non-deductible) on your tax return, you can then also report a Roth conversion of the contributed amount for net tax of zero, unless your IRA already had a basis.

In that case, it can't be done tax free.

@carpe_diem 

[carpe_diem]

@fanfare I appreciate your reply!

On TurboTax, there are different sections where you can enter "2024 traditional IRA contributions" and "2024 (excess) Roth contributions." Since the full $6912 Roth funds were recharacterized into traditional IRA, does that mean I enter $6912 in "2024 traditional IRA contributions" and $0 in "2024 (excess) Roth contributions"? Thank you!

[fanfare]

please read the answer again.

[DanaB27]

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 ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. 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.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" since 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 automatically and you only get a warning and then a screen saying $0 is deductible.

TurboTax will create Form 8606 with a basis on line 14 and this will be carried over to your 2025 return.

You will report the conversion next on your 2025 return when you get the 2025 Form 1099-R with code 2 (usually).

You will also get a 2025 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2024 and this belongs on the 2024 return. But a Form 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the Form 1099-R with code R when you get it in 2026.

@tinacun812 

[fanfare]

Your contribution was $6,912.

Having recharacterized, you no longer have an excess in a Roth IRA.

@carpe_diem