IRA > Roth IRA Recharacterization explanation requested for backdoor Roth IRA Conversion?

[YSTRBY]

Hello! I've gone through the steps for backdoor Roth IRA Conversion, and when I click "continue" after seeing the screen showing my 1099R, I get pushed into sharing an explanation for a recharacterization. From what I've read, a conversion is NOT a recharacterization.. can someone help me? Below are the steps I take:

1)Taken disaster distribution before 2022? > No

2) Any Nondeductible contributions to your IRA? > No

3) Tell us value of your traditional IRA > enter from fair market value on form 5498 for IRA

4) Explain Your recharacterization...

This is where I'm at a loss of how to proceed given from what I understand I did not do a recharacterization.

Some additional details:

1)Per the steps listed in the link above for entering backdoor roth ira conversion, I've checked the results in the preview of my 1040 (4b taxable amount is $0, and IRA deduction is 0).  

2) I think originally I'd said Yes for nondeductivel contribution (step 2) above, but I continued to receive a message saying my income was too high to deduct an IRA contribution, hence me going back to make changes, bringing me down this new path above..

[DanaB27]

Please be aware if you get the message during the IRA contribution interview that your income is too high to deduct the IRA contribution then you are on the correct path. You want it to be nondeductible.

Did you accidentally select that you want to switch (recharacterize) your IRA contribution? You made a direct traditional IRA contribution, correct? What is the code in box 7 of your Form 1099-R?

To enter the nondeductible contribution to the traditional 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 “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
10. 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 (If you don't get a warning then choose “Yes, make part of my IRA contribution nondeductible” on the “Choose Not to Deduct IRA Contributions” screen and enter the amount.

To enter the 1099-R conversion: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[YSTRBY]

Hi @DanaB27 and friends. Answers to your follow ups below. 

Also you say seeing that message means I'm on the correct path. Do I still want to receive that message once I've completed the 1099R? 

-Did you accidentally select that you want to switch (recharacterize) your IRA contribution? > I don't think so, but is there a way to verify? I followed all the steps as outlined on the Turbotax-created help article: How do I enter a backdoor Roth IRA conversion? . This appears to be nearly identical to the procedure you shared, as far as I can tell (perhaps you can confirm). I also used the steps at the end of this article to check the results of the conversion at the end of the article. It looks good to my eye. 

-You made a direct traditional IRA contribution, correct? Correct, which was then converted to Roth.

What is the code in box 7 of your Form 1099-R? Code is 2

[DanaB27]

Yes, if you want your traditional IRA contribution to be nondeductible because you are doing a backdoor Roth then the message that your income is too high to deduct your IRA is fine.

You can verify during the IRA contribution interview if you entered a recharacterization with these steps:

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 “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the contribution amount 
7.  Check if you answered “Yes” to the recharacterized question on the “Switch from a Traditional IRA To a Roth IRA?” screen and enter the contribution amount (no earnings or losses) on the next "Tell us how much you transferred screen" screen.

But you should have gotten the explanation for a recharacterization statement right there.

Did you enter any other Form 1099-R?

If you can't figure out why you getting the recharacterization explanation after entering your Form 1099-R then 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.

@YSTRBY 

[YSTRBY]

@DanaB27 , thank you! Here's my token number: 1097324. I also discovered more below..

I also just noticed that on the first page of the IRA contributions form, I have BOTH traditional ira and Roth selected..assuming this may be the issue, as I believe only Traditional IRA is supposed to be selected?

If I go that route, am I right in thinking I need to mark Yes, I made and tracked nondeductible contributions to my IRA? I think so, but I'm not sure.

..and then get to a "Roth IRA Contributions" where it asks me if I made Roth IRA Contribution in 2022. I don't see mention of that in your steps or the help center article I shared earlier..

[DanaB27 · Accepted solution]

Thank you. I reviewed your token. It seems you have entered a recharacterization in the Roth contribution section. Please go through the IRA contribution section to delete it:

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 "Traditional IRA" and “Roth IRA”
5. Go through the traditional IRA part
6. On the Roth contribution screen answer "No" and you should get a screen stating that your recharacterization will be deleted.

@YSTRBY 

[YSTRBY]

Hi @DanaB27 , Great I got the recharacterization deleted screen! I think I'm all clear now..I'll report back if otherwise. Love the Token Number tool to share!

[juliebauml84]

@DanaB27 I did these steps, thank you very much!  But when I go to check even though I do have a bit of interest which should show up in 4b on form 1040 nothing is showing up there it says 0.  How do I recifity it?

[DanaB27]

To clarify, you made a nondeductible contribution for 2024 and converted this plus the gains in 2024? 

Can you check Form 8606, to check your basis on line 1? This is the amount you contributed for 2024? And you have the conversion listed on Form 8606 part II?

Please see How do I enter a backdoor Roth IRA conversion? for additional information.

[juliebauml84]

@DanaB27 
it's for me and my spouse so 2 form 8606 but yes.  he converted his 2023 in 2024 and contributed to his 2024 as well; I converted my 2023 and contributed (and converted) my 2024 both in 2024.  Looking at his line 1 8606 it is 7000, line 2 total basis in IRAs (turbotax seemed to track/pull this number from 2023) was 6896.  Line 3 was the sum of both at 13896.  My line 1: 7000; line 2 6500, line 3 then was13500.  Part II on 8606 doesn't seem to have number from either of us, although I swear I did all the above steps as instructed....I suspect this is where the problem is coming in?

[DanaB27]

Yes, please review the instructions. After you enter the Form 1099-R you need to indicate in the follow-up questions that this was a conversion.  Also make sure that your Form 1099-R entry has the IRA/SEP/SIMPLE box checked.

Your lines 1, 2, and 3 entries on Form 8606 seems to be correct.

@juliebauml84