I was over the income limit, recharacterized roth IRA contribution (6000+earnings, to 7,058.61),then converted the traditional (7,058.61) to roth. Is my turbotax correct?

[krause]

How do I do this on Turbotax?

Realized I was over the income limit so recharacterized my roth IRA contribution (6000 + earnings, to 7,058.61), then converted the traditional (7,058.61) to roth. I created my Traditional IRA this year, but the conversion is for 2019 confusingly.

I think Turbotax supports this but the menus are confusing AF in my case. Most people just contribute to a traditional then convert, but I had to recharacterize first, then convert.

Made a video here of me clicking through it, am i doing anything wrong?

https://youtu.be/NTk2qpzb5M4 

[macuser_22]

Nobody can see your tax return to know if it was correct or not.

If the $6,000 was not deducted AND you had NO OTHER Traditional IRA accounts at the end of 2019 then only the $1,058 earnings would be taxable. 

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts. If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself. Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

[krause]

Sorry, i thought the turbotax folks would be viewing this.

Let me explain the time line: 

Jan 3 2019: Contributed 6k to my roth IRA

January 2020: Realized my income limit was too high for 2019

Jan 2020: Made a traditional IRA

Jan 2020: Recharacterized my 2019 6k roth ira + earnings (7,058.61) to  traditional IRA I made in jan 2020

Jan 2020: Converted traditional IRA back to roth 

????

Made this post.

[fanfare]

For 2019 report $6000 as a non-deductible contribution to Traditional IRA. Ignore earnings amount.

For 2020 you will report the conversion to a Roth IRA.

(Employees and /or others may reply to your post)

[macuser_22]

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@krause wrote:

Sorry, i thought the turbotax folks would be viewing this.

Let me explain the time line: 

Jan 3 2019: Contributed 6k to my roth IRA

January 2020: Realized my income limit was too high for 2019

Jan 2020: Made a traditional IRA

Jan 2020: Recharacterized my 2019 6k roth ira + earnings (7,058.61) to  traditional IRA I made in jan 2020

Jan 2020: Converted traditional IRA back to roth 

????

Made this post.

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If you recharacterized then you should have received a 1099-R with a code R in box 7, however a code R does not do anything in TurboTax and does not need to be entered.

The proper way to report the recharacterization and earnings which is to enter the 2019 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses. Only enter the $6,000.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper line 15a explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2018 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

In your case be sure to indicate that it should be non-deductible when that question comes up (if it does) - enter the $6,000  so that it can then be converted to a Roth IRA.

Then enter the 1099-R for the $7058 conversion.

hen enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2019. (Usually zero unless you also made a 2018 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.). 

The $6,000 basis for the recharactorization should NOT be entered as it is already on line 1 of a new 8606 form if you recharactorized as above.

Enter the 2019 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2019, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.  In your case only the $1,058 earnings should be taxable.

[orbtu]

Hi macuser_22,

My situation is similar, with 3 exceptions, and was wondering how to correctly fill in the TurboTax interview questions.

Exceptions:

1) I have code N on my 1009-R, instead of code R.

2) I did not later do a conversion back to Roth IRA like in the original question in this thread.

3) I also made an excess Roth contribution in 2017 which was realized and withdrawn in tax year 2019.

Summary of events in my situation:

1)  In Feb 2019, contributed $6,000 to Roth IRA for tax year 2019 (not 2018).

2)  In Dec 2019, realized my my income was too high for tax year 2019 to contribute to Roth. 

3) In Dec 2019, recharacterized $7,058.61 ($6,000 roth contribution + earnings) to Traditional IRA

4) My 1099-R shows code N ("Recharacterized IRA contribution made for 2019 and recharacterized in 2019.")

5) In 2017, I made an excess contribution of $5,500 to a Roth IRA.  I had also contributed $5,500 to Roth in 2018 (not an excess contribution for 2018).

6) I realized the mistake in 2019, and withdrew 2017's $5,500 contribution in Dec 2019.

7) 1099-R shows code J ("Early distribution from a Roth IRA, no known exception (in most cases, under age 59½)") for the $5,500 amount.

For the recharacterization, I've gone back to TurboTax (downloaded Premier software version, not online version) to Federal Taxes > Deductions & Credits > Retirement section and:

- Entered $6,000 as the Roth IRA contribution amount

- Entered $6,000 as the transferred amount switched from Roth to Traditional IRA ... (even though the actual amount transferred / recharacterized is $7,058.61 which includes the earnings.  The 1099-R also reflects this $7,058.61 amount with code N)

Questions:

1) Is the recharacterization correctly entered in TurboTax? 

2) How should the 2017 $5,500 excess Roth contribution / withdrawn amount be reported in TurboTax?

- I have entered the 1099-R info for the 2017 $5,500 excess Roth contribution in the Federal Taxes > Wages & Income > Retirement Plans and Social Security section. 

- Under the Federal Taxes > Deductions & Credits > Retirement and Investments > Traditional and Roth IRA Contributions section, I have entered the following for the 2017 excess Roth contribution:

---- $5,500 for the "Prior Year Roth IRA Contributions" question, which is wanting to know the net regular contributions and distributions prior to 2019.

---- $5,500 for the "Excess Contributions" question.

---- $5,500 for the "Contributions Withdrawn Before the Due Date" question

The funny thing here is that TurboTax is now showing "$500" on the Federal Taxes > Deductions & Credits summary page, under Retirement and Investment > Traditional and Roth IRA Contributions.  But I did not make this $500 contribution.  The $6k excess from 2019 was recharacterized, and the $5,500 from 2017 was withdrawn (and reported to TurboTax).

Did I enter information  correctly in TurboTax, or is this a software bug??

[macuser_22]

A code N is reported the exact same way as the code R.   The only difference is the code N goes on your 2019 tax return  and the code R on 2018.    They are both entered in the IRA Roth contribution interview in the exact same way with the explanation.      The only other difference is that a code R if entered into the 1099-R section does nothing whatsoever so there is no need to enter it at all, but a code N will put the box 1 amount on the 1040 line 4a, so it should be entered, but the recharacterization must be done as described above.

[orbtu]

Thanks macuser_22 for your quick reply.  I edited my post to include another related question while you were responding.  Could you please review and reply about the 2017 excess contribution? Thank you again!

[macuser_22]

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@orbtu wrote:

Thanks macuser_22 for your quick reply.  I edited my earlier question to include another question.  Could you please review and reply about the 2017 excess contribution? Thank you again!

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When was the 2017 excess removed?

You would need to file a 2017 & 2018 5329 form showing the excess and pay the 6% penalty for each year.   If removes in 2019 then there would not be a 2019 penalty unless it was still there at the end of 2019 then you need to pay the 2019 penalty also.

[orbtu]

I removed 2017's $5,500 Roth excess in Dec 2019.

So it sounds like I pay the 6% penalty in 2017 and 2018 only, by making an amendment in TurboTax for those 2 years.  Any ideas where I would make the amendments there?

Since the 1099-R for tax year 2019 includes the $5,500 withdrawn (excess roth contribution from 2017), I believe this needs to be reported for tax year 2019 as well, just no 6% penalty.  Did I enter the information correctly based on my earlier description of what was entered in TurboTax?

I don't understand why TurboTax shows $500 in the Deductions & Credits summary page in the retirement > IRA section. 

[macuser_22]

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@orbtu wrote:

I removed 2017's $5,500 Roth excess in Dec 2019.

So it sounds like I pay the 6% penalty in 2017 and 2018 only, by making an amendment in TurboTax for those 2 years.  Any ideas where I would make the amendments there?

Since the 1099-R for tax year 2019 includes the $5,500 withdrawn (excess roth contribution from 2017), I believe this needs to be reported for tax year 2019 as well, just no 6% penalty.  Did I enter the information correctly based on my earlier description of what was entered in TurboTax?

I don't understand why TurboTax shows $500 in the Deductions & Credits summary page in the retirement > IRA section. 

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No need to amend, just send stand alone 5329 forms for those years that you can get here:

https://apps.irs.gov/app/picklist/list/priorFormPublication.html;jsessionid=49_Q8fWZD9DJRZermEDSZKmQ...

There will be no 2019 penalty.

What is the description for  the $500 - what category?

[orbtu]

Thanks macuser_22.

The $500 is shown on this TurboTax screen if you go to:

- Federal Taxes > Deductions & Credits

The $500 is specifically listed under this section on the screen:

- Retirement and Investment > Traditional and Roth IRA Contributions, in the "2019" column. 

Again, I did not make a $500 IRA contribution.  The excess Roth contribution made in 2019 was recharacterized in 2019 and reported correctly in TurboTax (as we've established earlier in this thread).  The 2017's $5,500 excess Roth contribution was withdrawn in 2019.  

How should the 2019 withdrawal of 2017's $5,500 excess Roth contribution be entered in TurboTax?

[macuser_22]

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@orbtu wrote:

Thanks macuser_22.

The $500 is shown on this TurboTax screen if you go to:

- Federal Taxes > Deductions & Credits

The $500 is specifically listed under this section on the screen:

- Retirement and Investment > Traditional and Roth IRA Contributions, in the "2019" column. 

Again, I did not make a $500 IRA contribution.  The excess Roth contribution made in 2019 was recharacterized in 2019 and reported correctly in TurboTax (as we've established earlier in this thread).  The 2017's $5,500 excess Roth contribution was withdrawn in 2019.  

How should the 2019 withdrawal of 2017's $5,500 excess Roth contribution be entered in TurboTax?

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Go to the IRA contribution section and click through the interview for both Roth and Traditional IRA .    If anything is there as a excess then remove it.

You can also just delete the "IRA contribution worksheet" on the forms mode if using the desktop version if online this way:

https://ttlc.intuit.com/community/accessing/help/how-do-i-view-and-delete-forms-in-turbotax-online/0...