I made a $500 over-contribution to my Roth IRA on 11/30/2022. My advisor recharacterized this on 1/10/2023 but it had lost $6.06 in value. How do I document this in TT?

[MaryK4]

If the recharacterization is for the 2023 tax year, you will use $493.94 as your contribution amount next year.

[kjhornaday]

It has already been recharacterized as a 2023 contribution.  The problem is TurboTax says I will be penalized for the $6.06 loss.  There's no way to account for this.  

[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 “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount recharacterized of $500 (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $500 contribution minus the $6.06 loss was 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 automatically and you only get a warning and then a screen saying $0 is deductible)

You will get Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2022 and this belongs on the 2022 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 2024. The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

[kjhornaday]

I followed your directions but still end up at the screen "You currently have a penalty".  

[DanaB27]

To confirm did you have earned income to make IRA contributions? You need taxable compensation to be able to make IRA contributions.

If you don't have earned income and entered the recharacterization correctly it will state that you had an excess contribution to your traditional IRA.

If this is the case then you will need to request the withdrawal of the excess contribution plus earnings by the due date to avoid the 6% penalty.

@kjhornaday 

[kjhornaday]

To answer your questions:

1. Yes, I have earned income.  I have full time employment.

2. The earnings were withdrawn, but because I lost money, Turbo Tax is incorrectly attempting to assess a penalty.

[DanaB27]

To confirm you only entered the Roth contribution and no traditional IRA contribution, correct?

You entered the full $500 excess as recharacterized when TurboTax asks (disregard any gains or losses). But it still shows that you have an excess contribution and a penalty?

It would be helpful to have a TurboTax ".tax2022" file that is experiencing this issue. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

The instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@kjhornaday