Made Roth IRA contribution 12/21. Realized I exceed AGI limit, so recharacterized to traditional IRA and made backdoor Roth contribution at same time. How do I file taxes

[knauft21]

Made Roth IRA contribution in Dec. 2020 for 2020 tax year. Didn't realize I exceeded AGI limit until March 2021 so recharacterized a portion of my initial contribution (plus earnings) to traditional IRA and made backdoor Roth contribution for same amount at same time for the 2020 tax year. Unclear exactly how to file taxes in this situation.  Under deductions, I think I need to first report my initial Roth contribution of $6,000, recharacterize to a Traditional IRA the portion   earnings.  Then under Wages, I need to add a Back Door contribution equal to the portion that I recharacterized?

[DanaB27 · Accepted solution]

Yes, please follow these steps to enter the recharacterization under Deductions & Credits:

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 “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible).

No, the conversion will not be entered on your 2020 tax return because it happened in 2021.

Next year on your 2021 tax return you will enter the conversion like this:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. 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”
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contributions to your IRA?" since you had a nondeductible contributions in prior years.
8. Answer the questions about the basis and value

You will get two 1099-R in 2022 for 2021:

One 1099-R will be for the (backdoor) conversion from traditional IRA to Roth IRA and will be entered on your 2021 tax return like mentioned above. 

The second 1099-R will be for the recharacterization with code R-Recharacterized IRA contribution made for 2020 and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your return and you can ignore it. You can only report the recharacterization as mentioned above.

[knauft21]

Thank you for the detailed response.  Follow-up questions...

You mentioned that the conversion will NOT be entered on my 2020 tax return because it happened in 2021 (I agree... it technically happened in 2021).  However, since it happened prior to the May 17th deadline, I was under the impression that the backdoor contribution could be considered a 2020 contribution and count against my 2020 limit (so I could still make an additional contribution against my 2021 limit).   

Based on your description, it appears that the back-door contribution would be applied as a 2021 contribution and count against my 2021 limit, correct?  Since the recharacterization and the conversion/back-door contribution took place prior to May 17thh, couldn't I still count his as my 2020 contribution?  Assuming yes, wouldn't this need to be applied to my 2020 tax return, and NOT my 2021 as you suggested?  How would I handle this on my 2020 taxes considering I will not have my 1099-R paperwork prior to the May 17th deadline?

Thank you again!!

[DanaB27 · Accepted solution]

You will enter the contribution and recharacterization on your 2020 return and it will count as a 2020 contribution. 

But you will enter the conversion on your 2021 tax return. You will get the 1099-R for it in 2022. A conversion is not a contribution and will not count against your 2021 contribution limit. In 2021 you will only enter the conversion in the 1099-R section, do not enter this as a Roth contribution.