Need to file an amended return in this case: IRA recharacterization Roth to Traditional IRA, followed by backdoor conversion Traditional to Roth IRA

[crkdad]

Hello.

I have this situation:

During 2021 I made contributions to a Roth IRA. 

In Feb 2022 I learned I exceeded the income limit to contribute to a Roth during 2021 so I recharacterized the Roth contributions to Traditional IRA.

I believe I reported the recharacterization correctly in my TurboTax 2021 federal return.  (2021 Form 8606, line 1 reports traditional IRA after tax contributions.)

Later in 2022 I did a backdoor conversion from the Traditional to a Roth IRA.

My IRAs are with Vanguard and I downloaded two 1099Rs this year, one for the recharacterization and the second for the backdoor conversion.

The 1099R for the recharacterization reports

Line 1 Gross distribution                 $8100

Line 2a  Taxable amount                 $0

Line 7 Distribution codes(s)            R

IRA/SEP/Simple                                 (  )

Line 16  State distribution               $8100

In doing my taxes in TurboTax for 2022 I went through a Q&A regarding the recharacterization 1099R and got to a screen that says I may need to file an amended return for 2021.

Can someone tell me if an amended return for 2021 is required in my case?  I've read several discussions and it seems like I just ignore the recharacterization 1099R.

(I have completed TurboTax for the 1099R for the backdoor conversion per other discussions and I seem to have done that correctly.)

Any help would be appreciated!  Thank you!  

[DanaB27]

No, you do not need to amend your 2021 return since you reported the recharacterization on your 2021 tax return. You can ignore Form 1099-R with code R. 

[crkdad]

Thank you DanaB27!

[al2030]

Thanks for your response. By ignoring 1099R, do you mean it is not necessary to enter the information on the tax return for this year?

I am in a similar situation for the recharacterization of my traditional IRA to Roth IRA. Last year I correctly entered the recharacterization information on my tax return and explained the reason. This year I received 1099R with code R on section 7.  Based on what you explained, I don't need to enter 1099R form information in Turbotax for this year, right?

[DanaB27]

Yes, that is correct. Entering a Form 1099-R with code R won't make any changes to your return therefore you don't have to enter it and can ignore it.

Recharacterizations can only be reported in the IRA contribution section. If you entered your recharacterization from traditional IR to Roth IRA on your 2021 tax return with the steps below then you don't have anything else to do.

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “Traditional IRA”
4. Answer ‘Yes” on the “Roth IRA Contribution” screen
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the traditional IRA contribution amount 
7. Answer “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 screen.
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.

@al2030 

[al2030]

Thank you! It was ver helpful. Yes I followed those steps for 2021 tax rturn.

[mfeeney17]

So on form 8606, Line 1 on return 2022 if we have entered the recharacterized amount from Roth to traditional, we ignore the message on turbotax that we "may need to amend the return" and also specifically do not enter the information from our 1099-R into the turbotax?

[DanaB27]

Yes, you do not need to enter Form 1099-R with code R.

Yes, it seems you entered the recharacterization correctly on your 2022 tax return and therefore you can ignore the message to amend your return. 

@mfeeney17