On my 2017 return, I incorrectly classified my Roth IRA as a traditional IRA. Now Turbo Tax for 2018 assumes that it was reclassified as a Roth. What should I do?

[graham-clan]

In 2017, contributed $1000 to Roth IRA. Filed 2017 return in April of 2018, and manually entered data into Turbo Tax identifying it as a traditional IRA. Had it been classified as a Roth IRA, the contributions would not have been allowed due to income.

For 2018, Turbo Tax imported information from brokerage that identified it as a Roth IRA. Now, it believes that I have re-characterized it as a Roth, which is not accurate... I contributed $1100 to it in 2018, and again it is not allowed due to income.

My plan is to go to the financial institution and change the IRA from a Roth to a traditional.

My question is really about 2017:  do I need to file a 1040x, amended return?

[dmertz · Accepted solution]

Yes, you must amend your 2017 tax return to remove the reporting of a traditional IRA contribution.

You cannot change the 2017 Roth IRA contribution to be a traditional IRA contribution.  The deadline for recharacterizing that contribution was October 15, 2018.  When amending your 2017 tax return you will need to enter the $1,000 Roth IRA contribution to allow TurboTax to prepare Form 5329 to calculate the 6%, $60 excess contribution penalty which you need to pay with the amendment along with any amount of additional tax due if your originally reported traditional IRA contribution was reported as a deduction.

Since the 2017 Roth IRA contribution has not ye been corrected, your 2018 tax return will again need to show the $1,000 excess contribution in 2017 subject to another 6%, $60 penalty for 2018.  To avoid another excess contribution penalty for 2019 on this $1,000 you'll need to obtain a regular distribution of $1,000, with no adjustment for gain or loss.

As for your excess contribution of $1,100 to the Roth IRA for 2018, you have until the due date of your tax return to recharacterize the contribution to be a traditional IRA contribution instead.  In 2018 TurboTax you'll indicate that your made a $1,100 Roth IRA contribution and then you'll indicate to TurboTax that you "changed your mind" and recharacterized the entire $1,100 contribution to be a traditional IRA contribution instead.