Is there a recharacterization of IRA if I withdrew it Jun 2017 and opened a Roth IRA Jan 2018 for 2017 contribution. What shall be my explanation in Turbo Tax?

[noelmananghaya]

My 401k from employer was deposited to “The  Bankcorp” June 2017 because I was laid off Aug 2014. I withdrew and closed the account last June 2017 because I will be charged something like $35/year with almost no interest. I don’t know what to do so I deposited it in my personal bank account with no penalty. I opened ROTH IRA Jan 2018 for 2017 contribution. I was asked by Turbo Tax to give explanation for the recharacterization of 1099-R form that I received. Is there recharacterization there? What explanation should I write in Turbo Tax?

[macuser_22 · Accepted solution]

No. it is not a recharacterization.

You took a distribution of your 401(k) in June of 2017 which is a taxable distribution plus a 10% early distribution penalty if there is a code 1 in the 1099-R that you should have received.   Because you did not roll it into a Traditional IRA within the 60 day time limit that is a taxable distribution.

You enter the 1099-R for that in the Retirement 1099-R section.

If you subsequently made a Roth IRA contribution, then you enter that in the IRA contribution section.  It is NOT a recharacterization because it was not rolled into an IRA to begun with.  It is a new contribution subject to the rules of any new contribution.  It cannot be more than $5,500 ($6,500 if over age 50) and cannot be more than your earned compensation, whichever is less.

If it exceeds that then it is an excess contribution subject to a 6% penalty that repeats each year until removed.  If excessive it can be removed as a "return of contribution" without penalty if before the due date of the 2017 tax return (Apr 17, 2018) or the extended due date (Oct 15, 2018 if a timely extension is filed).