IRA Recharacterization

[juleyh]

I recharacterized my IRA as soon as I realized that one-time, lump sum payout put our income over the maximum for Roth IRA Contribution in 2024.

Fidelity helped me to move the $8k plus $60 or so (earned interest between contribution and recharacterization) to my Traditional IRA.

Why is TurboTax trying to penalize me on the $60? Did I miss a step? Do I need to withdraw that $60 this year and pay tax on it in order to avoid penalty? Where would I report that Trad IRA withdrawal? I'm over age 60.

[DanaB27 · Accepted solution]

Please make sure you enter the $8,000 (without earnings) as recharacterized.

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 $8,000
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount of $8,000 (no earnings or losses) on the next screen.
9. TurboTax will ask for an explanation statement where it should be stated that the original $8,000 plus $60 earnings 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)