"Excess Roth IRA Contributions For Prior Years" clarification

[InblEric]

I'm filing my 2019 taxes. I noticed recently (in 2020) that I had excess contributions to my Roth IRA.

I have already done the recharacterization to a tIRA earlier this month. I've filled out the statement about the recharacterization and all that, but now I'm on the part when it asks this:

Enter Excess Contributions

"Name's Excess Roth IRA Contributions For Prior Years". Do I put $0 since I recharacterized it? Or do I put the excess amount even though I already recharacterized it? 

Does prior mean before 2020? Or before 2019 since this is my 2019 return?

Timeline for clarity:

2019 & early 2020: contributed to Roth IRA in excess

July 2020: Realized, and recharacterized the excess contributions

Later in July 2020: Filing for 2019, trying to figure out what to put under "Excess Roth IRA Contributions For Prior Years"

I'm guessing when filing for 2020 I'll probably have to include something as well...

Also, I recharacterized a small contribution I had made for 2020. I'm not sure I need to cover this in my 2019 return but I'm guessing not.

[macuser_22 · Accepted solution]

The recharacterization for 2020 will be reported on your 2020 tax return next year.

I suggest that you uncheck any box in the IRA contribution interview and press continue to remove any entries, then return and check the Roth contribution box and enter the 2019 Roth contribution and do the below.

Report the 2019 recharacterization this way.    You should receive a 2020 1099-R next year with a code R in box 7.

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.

[InblEric]

Thanks a lot. This all makes sense to me, until I get to the part where is asks about "Excess Roth IRA Contributions For Prior Years". Do I say $0 for that part? I'm wondering if it's asking if in like 2018/2017/etc I had excess contributions that I haven't taken care of yet. (I don't)

This is after I've entered my roth contributions and indicated that I moved them to a tIRA, including filling out the statement about amounts/reasons.

[InblEric]

@macuser_22 Not sure if you saw my reply or not but I'm curious about the answer to that question as the wording isn't very clear in Turbotax.

[macuser_22]

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@InblEric wrote:

Thanks a lot. This all makes sense to me, until I get to the part where is asks about "Excess Roth IRA Contributions For Prior Years". Do I say $0 for that part? I'm wondering if it's asking if in like 2018/2017/etc I had excess contributions that I haven't taken care of yet. (I don't)

This is after I've entered my roth contributions and indicated that I moved them to a tIRA, including filling out the statement about amounts/reasons.

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Yes, it is asking if there are excess contributions still in the IRA that were contributions for 2018 or before.   If none then enter 0 or just leave it blank and move on.

[kvkeee]

Dear @macuser_22 

I am in the similar boat, but for tax year 2020. I am confused by your sentences

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.

What you are referring to "It" in the sentence "It does not get sent to the IRS and nothing goes on the tax return at all." Are you referring to the 1099-R or the tax return itself? If nothing goes on the tax return, what is the point of amending the return? 

Thanks in advance.

[macuser_22]

"it" refers to the subject of the paragraph - the 1099-R.    Depending if you choose to make the recharactorized Traditional IRA contribution deductible or non-deductible  then  either a 1040 Schedule 1 with the deductible contribution on line 19 or if non-deductible, a 8606 form with the non-deductible contribution on line 1, gets sent to the  IRS along with your explanation statement as mentioned above.

[kvkeee]

Thanks for your quick reply @macuser_22. After recharacterization, the contribution became non-deductible  and filing form 8606 (plus explanation for recharacterization) along with 2020 return. 

So in 2022 when I get the 1099-R, do I have to file an amendment to my 2020 return?

[macuser_22]

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@kvkeee wrote:

Thanks for your quick reply @macuser_22. After recharacterization, the contribution became non-deductible  and filing form 8606 (plus explanation for recharacterization) along with 2020 return. 

So in 2022 when I get the 1099-R, do I have to file an amendment to my 2020 return?

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No - that is the reason for reporting it now - so you will not need to amend.

[kvkeee]

But I won't get the 1099-R until next year. How do I report it now on my 2020 return?

If I don't report it (1099-R) now, then I have to amend my 2020 return next year?

[macuser_22]

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@kvkeee wrote:

But I won't get the 1099-R until next year. How do I report it now on my 2020 return?

If I don't report it (1099-R) now, then I have to amend my 2020 return next year?

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You already did if you have a 2020 8606.  Nothing else to do.

[kvkeee]

Now I am able to connect the dots. So Turbo Tax is essentially helping me avoid the extra effort of amending my return next year, by asking me questions about recharacterization and filling Form 8606 as well as attaching an explanation.

Thank you @macuser_22 .