How to report recharacterization of Roth IRA to a nondeductible traditional IRA in TurboTax?

[rosewq]

I had originally made excess contributions directly to a Roth IRA for both 2016 and 2017, then had to recharacterize both into a traditional nondeductible IRA in Feb 2017. How to report recharacterization of Roth IRA to traditional IRA in TurboTax? Which tax year should I report these recharacterizations?

[phat7734]

I have a similar situation and need some help. In 2016 I transferred a total of $38,100 from my traditional IRA to a Roth IRA (both held in my Charles Schwab account). I then recharacterized $19,100 back into my Traditional IRA on 2/6/2017. The IRS now wants to disallow the recharacterizationand make me pay taxes based the $38,100 instead of the net $19,000 transferred. I think I need to dispute this ruling...Am I on good legal ground to do so?

[macuser_22]

@phat7734 - A recharactorized contribution and recharacterized conversion are totally different things.

You should  have received and reported a 1099-R for the distribution and reported the total box 1 amount on line 15a the amount actually converted in line 15b and an attached explanation statement about the recharacterization (assuming no basis in the IRA).

You did not provide any detail as to how you reported this.

If you reported it incorrectly then answer (or call the IRS number in the letter) to dispute the tax.   Your Schwab statements should be your proof that shows the actual amount converted.

[dmertz]

phat7734, the recharacterization should have resulted in Schwab issuing a code R 2017 Form 1099-R from the Roth IRA showing the amount transferred back to the traditional IRA as a result of the recharacterization and a 2017 Form 5498 from the traditional IRA showing the same amount as a recharacterization contribution to the traditional IRA.  Due to investment gains or losses in the Roth IRA while the $19,100 was in the Roth IRA the amount transferred in the recharacterization is expected to be different from the $19,100 recharacterized, so the explanation that macuser_22 mentioned is needed to show the IRS the amount of gain or loss that accompanied the $19,100 transfered.

[phat7734]

Many Thanks...I have researched this with the IRA records/Statements from Schwab and confirmed the Recharacterization. In my Tax filing for 2016 I explained that I had completed the Recharacterization on 2/6/2017. Unfortunately, Schwab issued the 1099R in January of 2018!  Thus, the IRS had no record of it and I couldn't provide the supporting 1099R in my filing of my 2016 Taxes...

[dmertz]

It appears that you reported everything correctly.  It seems that the IRS jumped the gun on generating the letter, or an IRS examiner involved is inexperienced.

The IRS is aware that a code R Form 1099-R is not issued until about a year after the due date of the tax return reporting the recharacterization, so the IRS normally does not question such a recharacterization if you provide proper explanation (and the corresponding code R Form 1099-R is eventually received by the IRS).  The IRS might question the recharacterization if you did not provide in your explanation the date of the conversion and the date of the recharacterization, perhaps causing the IRS to believe that the recharacterization was performed in the same year as the conversion and causing them to expect to receive a code N Form 1099-R instead.

[KenH1 · Accepted solution]

Report the 2016 recharacterization on your 2016 tax return (even though you did it in 2017), and the 2017 recharacterization next year.

TurboTax will automatically generate a form 8606 if based on your 1099-R entry.  See more detail below, if needed:

https://ttlc.intuit.com/replies/5764599

[AHNEZ]

I over paid for traditional IRA in 2021 for 2020 Tax year.  I need to convert/transfer $4,900 of that to ROTH because of my limitation.  Please let me know what do I need to do.   Thank you!