2019 return - Reporting recharacterization completed in 2020

[Jdcasares129]

I made an excess Roth IRA contribution in 2019. In February 2020, I requested my financial institution recharacterize the entire contribution as a nondeductible traditional IRA contribution. When I called the IRS to ask how to report this, I was directed to form 8606 but am confused on how to continue. The appropriate section says: "You made a contribution to a Roth IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a traditional IRA. Report the nondeductible traditional IRA portion of
the recharacterized contribution, if any, on Form 8606, Part I. Don’t report the Roth IRA contribution (whether or not you recharacterized all or part of it) on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2019, include the amount transferred from the Roth IRA on Form 1040 or 1040-SR, line 4a; or Form 1040-NR, line 16a. If the recharacterization occurred in 2020, report the amount transferred only in the attached statement, and not on your 2019 or 2020 tax return."

I can't tell from this: do I report the recharacterization as a nondeductible traditional IRA contribution when I enter in my IRA contributions OR do I just include the statement saying that the recharacterization happened and leave the IRA contribution section blank?  

[macuser_22]

For a recharacterization done in 2020 you will receive a 2020 1099-R next January to report it.

If you know that the account trustee will in fact be reporting it as a recharactorization with a 1099-R with a code R in box 7 and the amount recharactorized plus any earnings in box 1 then you can report it now on your 2019 tax return.  Otherwise wait for the 1099-R next year and amend 2019 to report it.

A 2020 1099-R with a Code R means a recharactorized in 2020 for a 2019 contribution.

A 2020 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2019 and recharactorized in 2020) will tell you that you must amend 2019.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2019 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2019 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2019 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper  explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2019 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

[Jdcasares129]

Where does form 8606 come in then? And why does it say at the end that I shouldn't report the recharacterization in either my 2019 or 2020 taxes if I complete the recharacterization in 2020? 

[macuser_22]

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@Jdcasares129 wrote:

Where does form 8606 come in then? And why does it say at the end that I shouldn't report the recharacterization in either my 2019 or 2020 taxes if I complete the recharacterization in 2020? 

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The 8606, as in the end of the intrusion in the box above, reports the new Traditional IRA contribution as a non-deductible contribution if you choose not to deduct it or your MAGI is too high to deduct.

It does not say not to report the recharacterization.  It says that a 2019 contribution that was recharacterized in 2020 can ONLY be reported on a 2019 tax return - the year that the contribution was made.

But you will not receive the 1099-R that reports it to you until 2021 which means that you would have to amend 2019 in 2021 in order to report it unless you have the necessary information to report it now even though you do not yet have the 2020 1099-R  so that you will not need to amend when you do receive the 1099-R.

[KrisP65]

Back in February 2019, I made a 2018 contribution to my Regular IRA.  Subsequently, while completing my 2018 taxes, I realized that this contribution will not be tax deductible.  As a result, I requested the mutual fund managing this IRA to recharacterize the 2018 contribution into my ROTH IRA.

Earlier this month, I received a form 1099-R with 'R' in box 7 and decided to contact the mutual fund.  During the call, the mutual fund rep. advised that they'll issue a form 5498 in May.  Accordingly, this form will 'wash' the distribution reported on the form 1099-R and I don't have to report it.

Is this the case?  If not, what's the proper way to report this recharacterization of the non-deductible Regular IRA into the ROTH IRA?

[macuser_22]

A 2019 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2018 and recharactorized in 2019) will tell you that you must amend 2018.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2018 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2018 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2018 Traditional IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Traditional IRA to a Roth IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

[Edited to switch Roth and Traditional IRA and remove reference to 8606]

[KrisP65]

Thanks for the quick reply

Regarding your comment "A 2019 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2018 and recharactorized in 2019) will tell you that you must amend 2018," I wanted to clarify that made 2018 IRA contribution in February 2019 and then recharacterized it a month later in March 2019.  As such, I'm not sure why would you suggest to amend 2018 return?

Then you  comment "The proper way to report the recharacterization and earnings which is to enter the 2018 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize", I wanted to clarify that I didn't switch from a Roth to a Traditional IRA.  Is there a section that says "Did you switch from a Traditional IRA to a Roth - recharacterize"?  Also, when entering the 2018 IRA contribution in the IRA contribution interview section, should I enter this as the original Traditional IRA contribution or as the Roth after the recharacterization?

Thanks again for your help

[macuser_22]

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@KrisP65 wrote:

Thanks for the quick reply

Regarding your comment "A 2019 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2018 and recharactorized in 2019) will tell you that you must amend 2018," I wanted to clarify that made 2018 IRA contribution in February 2019 and then recharacterized it a month later in March 2019.  As such, I'm not sure why would you suggest to amend 2018 return?

Then you  comment "The proper way to report the recharacterization and earnings which is to enter the 2018 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize", I wanted to clarify that I didn't switch from a Roth to a Traditional IRA.  Is there a section that says "Did you switch from a Traditional IRA to a Roth - recharacterize"?  Also, when entering the 2018 IRA contribution in the IRA contribution interview section, should I enter this as the original Traditional IRA contribution or as the Roth after the recharacterization?

Thanks again for your help

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I am sorry, I did not edit my answer for your situation.   Most recharacterizations are Roth to Traditional IRA's.  Yours is the other  way around so it should have said:

"The proper way to report the recharacterization and earnings which is to enter the 2018 Traditional  IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Traditional IRA to a Roth IRA - recharacterize"."

Your other question:  You said it was a 2018 contribution so it must be reported in the tax year that the contribution was for, not the year that it was made.  The code R means a recharacterization of a contribution for 2018 recharacterized in 2019 so it must be reported on yiu 2018 tax return.

Answer above edited.

[KrisP65]

Since "A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2018 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2018 tax return,"  do you know whether there could be any consequences of not amending my 2018 return?  I just wonder if it's really necessary to bother with amending 2018 return in this situation.

Thanks again

[macuser_22]

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@KrisP65 wrote:

 I just wonder if it's really necessary to bother with amending 2018 return in this situation.

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How was the 2018 Traditional IRA contribution reported on your 2018 tax return?

If you entered it as a non-deductible contribution then there should have been  a 8606 form in your 2018 tax return reporting the non-deductible contribution on line 1.  You would need to amend to remove that and submit a new 8606 with an amended return.

If the contribution was even "partly" deductible (your MAGI in the phaseout range) then you might have a 2018 Schedule 1, line 32 entry and would need to amend to remove that and pay back the tax deduction.

If you did not enter the contribution at all then amending would only attach an explanation statement for the recharactorization and make no other change so I would not amend just for that.  I doubt you would ever hear form the IRS because of a missing statement if it did no affect the return  in any other way.

[rich25]

In March 2019, I recharacterized 2018 contributions to Roth IRA to a traditional IRA. Traditional IRA was not deductable so I completed Form 8606 and recharacterization statement and submitted with 2018 tax return. I received a 2019 1099-R with amount recharacterized in box 1, $0 for taxable amount in Box 2, and R in Box 7. Since I completed form 8606 and recharacterization statement on 2018 tax return, I should not have to amend 2018 return even though turbo tax says I need to?

[macuser_22]

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@rich25 wrote:

In March 2019, I recharacterized 2018 contributions to Roth IRA to a traditional IRA. Traditional IRA was not deductable so I completed Form 8606 and recharacterization statement and submitted with 2018 tax return. I received a 2019 1099-R with amount recharacterized in box 1, $0 for taxable amount in Box 2, and R in Box 7. Since I completed form 8606 and recharacterization statement on 2018 tax return, I should not have to amend 2018 return even though turbo tax says I need to?

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It tells you to amend so that you can do what you already did, so nothing else is required. The 2018 explanation statement and 8606 is how it is reported.

[rich25]

Thanks for the quick response. Forgot to ask, do I need to go into the 2018 return and add the 2019 1099R info into the return?

[macuser_22]

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@rich25 wrote:

Thanks for the quick response. Forgot to ask, do I need to go into the 2018 return and add the 2019 1099R info into the return?

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No.  As I posted above "A code R 1099-R does nothing whatsoever"  - it is ignored by TurboTax.

[Gunner33]

@macuser_22  I'm in a similar situation and looking for advice. I still haven't completed by 2019 tax returns and have an extension till Oct 15,2020.  I'm going to do a Recharacterization from Traditional IRA to ROTH IRA.  What is the best way for me to put the information in Turbo tax so that I don't have to later file an ammended 2019 Tax return ? Here's my situation :-

 I had put $6K  in my existing Traditional IRA in April 2020 and had specified it towards 2019 tax year and also made the selection as 'deductible' on Merrill Edge website.  It  was my assumption at that time that this would be  a 'deductible' contribution when I file my 2019 tax returns.  Now, I realized since both my wife and I have 401K/retirement plan at work, it makes us ineligible to get Traditional IRA tax deduction. 

So, now, I have opened an ROTH IRA with the same provider (Merrill) and plan on doing a Recharacterization FROM Traditional IRA to ROTH IRA for this 6K along-with the small earnings.  This is all for 2019 taxes.  I did check and we do qualify for ROTH contribution based on our joint income.

Based on my reading your prior replies, it seems I'll receive 1099-R in Jan/Feb 2021 for the recharacterization that I'm going to perform but I do know my exact contributions and gains and can enter them correctly in my 2019 tax returns w/o 1099-R.  Does this make sense and can I avoid filing an ammended 2019 return if I file my initial 2019 tax return this way or some other way ?