IRA Recharacterization and Conversion Reporting

[daisyluna]

Hi - I could use some help determining how to report my taxes for the below situation. 

When I began filling out my taxes in 2024 for the tax year 2023, I realized that my income for 2023 was above the limit for Roth IRAs. I contributed $6,500 during 2023 before I received a bonus that put my income over the threshold, and I have since realized gains and dividends on that contribution. 

In 2024, I have gone through the process of recharacterizing the total amount in my Roth IRA to a Traditional IRA I opened with Vanguard. The majority of this total amount has been recharacterized, however there is still a small dividend (less than $20) that is still in my Roth IRA and Vanguard is working on recharacterizing it. 

My first question is if I need to wait to file my taxes until this dividend is recharacterized to the traditional IRA (I am concerned it will not be completed until after taxes are due). 

I am also confused about how to file my 2023 taxes as I go about this process. Note that my plan is to do a backdoor conversion of the total amount back to the Roth IRA once the dividend recharacterization is complete. 

For my 2023 taxes, should I state that I contributed to both a Roth and Traditional IRA, or just a Roth IRA? Additionally, if I am able to complete the backdoor conversion before I submit my taxes, do I have to note that anywhere in my 2023 taxes, or will that just impact my 2024 taxes?

Thank you!

[DanaB27]

No, you do not need to wait to file your return.

No, 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 $6,500
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount of $6,500 (no earnings or losses) on the next screen.
9. TurboTax will ask for an explanation statement where it should be stated that the original $6,500 plus $xxx.xx earnings (or loss) were recharacterized.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" if you are thinking about doing a backdoor Roth. Otherwise select "No". (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 a 2024 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2023 and this belongs on the 2023 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 2025. 

You will have a 2023 Form 8606 showing a basis on line 14 that will be carried over to 2024. The conversion for the backdoor Roth will be entered next year on your 2024 return since it will happen in 2024.

[fanfare]

recharacterization: the original amount to the first IRA you report as contribution to the second IRA, earnings move but are ignored.
You must use a trustee-to-trustee transfer before the due date April 15,2024.
You will instruct trustee to calculate the allocable earnings. ( you say in progress)

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.

@daisyluna 

[fanfare]

It's a lot easier in Step 4 above to select Traditional IRA.

You no longer have a Roth IRA contribution.

@daisyluna