Entered 1099-R, and get "no extra tax owned" message. However, 1099-R still be added to taxable income.

[lilymd]

Contributed $12k to Roth IRA in early May 2021, $6k for 2020, $6k for 2021. Laid off package made me over qualified. Opened a Traditional IRA, move money from ROTH to tIRA at 2 different dates, half for 2020, another half for 2021. Then, convert from tIRA to Roth at 2 different dates.

Got one 1099-R for tIRA in total instead of two. Entered 1099-R, and get "no extra tax owned" message. However, 1099-R still be added to taxable income.

All money are after-tax.

Thank you.

[lilymd]

Called Turbotax and got help from a super nice lady. Change Box 7 Distribution Code from 2 to G.

Fixed. Happy Friday!

[lilymd]

After entering 1099-R with Distribution Code "R", a message "You may need amend 2020 tax."

Should I mail this 1099-R and write a letter to IRS? Is there any form for amend previous tax return?

Thanks!

[SweetieJean]

Change Box 7 Distribution Code from 2 to G.

Well, the IRS gets a copy of that 1099-R, and will just change it back.   So be prepared.

[dmertz]

"No extra tax" means no early-distribution penalty (excise tax).

Changing the code to G is improper.  Code G can never be used to report a Roth conversion which is what the code-2 Form 1099-R is reporting.  Your traditional IRA contribution that resulted from the recharacterization of the Roth IRA contribution must be present either as a deduction on Schedule 1 or as nondeductible on Form 8606.  The Roth conversion is required to be reported on From 8606 and changing the code to G will cause your tax return to erroneously omit this.

Your Roth conversion may or may not be taxable depending on the calculations on Form 8606.

[lilymd]

Code 2: Early distribution (except Roth IRA) exception applies

Code G: Direct rollover and rollover contribution

from tIRA to Roth IRA, is Code 2 correct?

My situation:

tIRA was opened last year to handle the overqualified Roth IRA contribution. No previous balance/value. After recharacterization and conversion, the balance/value is zero.

All money are after-tax.

On 8606, the taxable amount is the (box 1 on tIRA 1099-R )-$6k(2021 Roth IRA)=taxable amount. 

My questions:

1. (box 1 on tIRA 1099-R) is for 2 years 2020 and 2021 since recharacterization and conversion happened in 2021 calendar year; $6k is for 2021 ROTH IRA contribution only. How to use the 2020 $6k ROTH IRA contribution?

2. With 8606, Turbotax still adds (box 1 on tIRA 1099-R) as taxable income, ignores the $6k.

Thanks!

[dmertz]

Presumably you timely filed your 2020 tax return or requested a filing extension and you did the recharacterizations before October 15, 2021, otherwise the recharacterization of the 2020 excess Roth IRA contribution was improper due to performing this recharacterization after the deadline for doing so.

Box 1 on the 2021 Form 1099-R Form 8606 is only for the 2021 nondeductible traditional IRA contribution resulting from the recharacterization of the 2021 Roth IRA contribution.  The 2020 nondeductible traditional IRA contribution resulting from the recharacterization of the 2020 Roth IRA contribution was reportable in box 1 of your 2020 Form 8606, propagating through to line 14 to be carried over to box 2 of your 2021 Form 8606.  If you did not file a 2020 Form 8606, you must do so.  Also, if you filed 2020 Form 5329 reporting an excess Roth IRA contribution, that needs to be corrected as well.

The sum of boxes 1 and 2 on your 2021 tax return should be $12,000 to be used in calculating the taxable amount of the Roth conversion.  I would expect the amount of the Roth conversion reported on the code-2 Form 1099-R to be more or less than $12,000 due to investment performance prior to the Roth conversion.

Although it doesn't affect your eligibility to have recharacterized your 2020 Roth IRA contribution, you haven't mentioned what made your 2020 MAGI too high to make a Roth IRA contribution for 2020.  You only mentioned a severance package you received in 2021 that made your MAGI too high to make a 2021 Roth IRA contribution.

In addition to the code-2 2021 Form 1099-R, you should have received a code-R 2021 Form 1099-R reporting the recharacterization of the 2020 Roth IRA contribution and a code-N 2021 Form 1099-R reporting the recharacterization of the 2021 Roth IRA contribution.  Nothing about these transactions is reportable with code G; you must enter into TurboTax the codes that the payer provided on the Forms 1099-R.

[lilymd]

Thank you so much!

Presumably you timely filed your 2020 tax return or requested a filing extension and you did the recharacterizations before October 15, 2021, otherwise the recharacterization of the 2020 excess Roth IRA contribution was improper due to performing this recharacterization after the deadline for doing so.

😀~I filed 2020 tax return on time. I just got 5498 ROTH IRA $6k contribution form, no 1099-R. Only filled up Turbotax Deductions&Credits  Roth IRA Contribution part, $6k nondeductible.

Box 1 on the 2021 Form 1099-R Form 8606 is only for the 2021 nondeductible traditional IRA contribution resulting from the recharacterization of the 2021 Roth IRA contribution.  The 2020 nondeductible traditional IRA contribution resulting from the recharacterization of the 2020 Roth IRA contribution was reportable in box 1 of your 2020 Form 8606, propagating through to line 14 to be carried over to box 2 of your 2021 Form 8606.  If you did not file a 2020 Form 8606, you must do so.  Also, if you filed 2020 Form 5329 reporting an excess Roth IRA contribution, that needs to be corrected as well.

😀~ I did not file 2020 Form 8606. I did not get 2020 1099-R.

I do not think I need 2020 Form 5329 because the $12k are for both 2020 and 2021 together. Is it excess contribution?

I need amend 2020 tax return and file 2020 Form 8606.

The sum of boxes 1 and 2 on your 2021 tax return should be $12,000 to be used in calculating the taxable amount of the Roth conversion.  I would expect the amount of the Roth conversion reported on the code-2 Form 1099-R to be more or less than $12,000 due to investment performance prior to the Roth conversion.

😀~Thank you. "The sum of boxes 1 and 2 on your 2021 tax return should be $12,000 to be used in calculating the taxable amount of the Roth conversion." Do you mean 2021 Form 8606? 

Although it doesn't affect your eligibility to have recharacterized your 2020 Roth IRA contribution, you haven't mentioned what made your 2020 MAGI too high to make a Roth IRA contribution for 2020.  You only mentioned a severance package you received in 2021 that made your MAGI too high to make a 2021 Roth IRA contribution.

😀~My 2020 MAGI is about several thousand dollars higher than the limit. A laid off package made my 2021 MAGI higher than the limit. My mistake was I put $12k in 2021 before filing 2020 tax return, $6k for 2020 ROTH IRA, another $6k for 2021 Roth IRA that I am both overqualified. double headache...🙄

In addition to the code-2 2021 Form 1099-R, you should have received a code-R 2021 Form 1099-R reporting the recharacterization of the 2020 Roth IRA contribution and a code-N 2021 Form 1099-R reporting the recharacterization of the 2021 Roth IRA contribution.  Nothing about these transactions is reportable with code G; you must enter into TurboTax the codes that the payer provided on the Forms 1099-R.

😀~Thank you. You are right. I got a 1099-R with Code 2, a 1099-R with Code R, a 1099-R with Code N.

My understanding is I need amend 2020 tax return with 2020 Form 8606. It will solve the 2020 $6k Roth-tIRA-Roth.

On 2021 Form 8606, box1 is $6000 for 2020 tIRA, box2 is $6000 for 2021 tIRA. Then, the $12000 is larger than 1099-R Code 2 box1.

Thank you!

ReplyMark as Best Answer

[dmertz]

Yes, file The 2020 Form 8606 to report the $6,000 nondeductible traditional IRA contribution that resulted from the recharacterized Roth IRA contribution for 2020.  Lines 1, 5 and 14 will show $6,000.

On the 2021 Form 8606 you'll have $6,000 for the 2021 nondeductible traditional IRA contribution that resulted from the recharacterized Roth IRA contribution for 2021.  On line 2 you'll have the $6,000 carried over from line 14 of the 2020 Form 8606.