Hi, 1099-R taxable income 2a has amount even though it was a roth conversion

[dhuynh44]

Hi,

An update; after doing what you guys told me the $1000 I was going to be taxed for a non-deductible contribution of my traditional IRA went away!  Thank you!

However I had one more question.  I also contributed about $1000 to a Roth IRA straight up without converting from a traditional.  When it asks me during “deductions and credits” if I contributed to a Roth IRA for 2020, here I input the $1000 correct?  When I do this, it adds about $70 in additional tax. Why is this when I put in after tax dollars?  Thank you,

[macuser_22]

---

@dhuynh44 wrote:

Hi,

An update; after doing what you guys told me the $1000 I was going to be taxed for a non-deductible contribution of my traditional IRA went away!  Thank you!

However I had one more question.  I also contributed about $1000 to a Roth IRA straight up without converting from a traditional.  When it asks me during “deductions and credits” if I contributed to a Roth IRA for 2020, here I input the $1000 correct?  When I do this, it adds about $70 in additional tax. Why is this when I put in after tax dollars?  Thank you,

---

The only way  a Roth contribution would be taxable is of the tax is an excess contribution penalty if you contributed more then the allowable amount or more then your taxable compensation.

The Roth IRA contribution interview will tell you the reason.

[dhuynh44]

After going a little further, this is the exact reason why they are adding a tax, upon $1000 excess contribution for me and $2500 excess contribution for my wife.  I have 3 options to correct this including: withdraw excess contribution OR change IRA contribution to traditional (which may look to be the better option)

What is the best way to handle the situation, and what do I have to do in my TurboTax after this decision?  Thank you!

[macuser_22]

That is up to you.  You can have the IRA custodian recharacterize the contribution plus earnings  to a Traditional IRA that is treate as if the contribution was to a Traditional IRA and not a Roth or ask the custodian for a "Return of Contribution plus earnings"  that returns the mony to you.

Either one will be reported (differently) on a 2021 1099-R next year.

[dhuynh44]

So if they recharacterize the Roth back to traditional IRA what does this mean?  It just simply gets transferred and I can leave this amount in a traditional IRA?  Or can I “convert” this amount back (backdoor) to Roth IRA in the future? (2021 year)?

[macuser_22]

---

@dhuynh44 wrote:

So if they recharacterize the Roth back to traditional IRA what does this mean?  It just simply gets transferred and I can leave this amount in a traditional IRA?  Or can I “convert” this amount back (backdoor) to Roth IRA in the future? (2021 year)?

---

Yes you can convert if you make it a non-deductible contribution.   You will receive a 2021 1099-R with a code R in box 7 that you can ignore if your report it now. 

A 2021 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2020 and recharactorized in 2021) will tell you that you must amend 2020.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2020 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 2020 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 2020 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 2020 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.

[dhuynh44]

Thank you. I’ve read that since 2017 you can no longer recharacterize Roth CONVERSIONS to traditional, however does this include just contributing non- deductible transfer to Roth IRA?  The amount that I was not supposed to put into Roth was direct contributions to Roth, not a conversion from traditional IRA. Am I still able to recharacterize this amount to traditional IRA?  Than

[dhuynh44]

In addition I am having trouble calculating earnings on this amount $1000 and cannot get a hold of my institution.  Do I need to recharacterize earnings on the $1000 and it so how?  Thank you

[macuser_22]

---

@dhuynh44 wrote:

Thank you. I’ve read that since 2017 you can no longer recharacterize Roth CONVERSIONS to traditional, however does this include just contributing non- deductible transfer to Roth IRA?  The amount that I was not supposed to put into Roth was direct contributions to Roth, not a conversion from traditional IRA. Am I still able to recharacterize this amount to traditional IRA?  Than

---

Correct - once you do a conversion it cannot be undone.   Contributions can be recharactorized.

[macuser_22]

---

@dhuynh44 wrote:

In addition I am having trouble calculating earnings on this amount $1000 and cannot get a hold of my institution.  Do I need to recharacterize earnings on the $1000 and it so how?  Thank you

---

"You" can recharacterize,  you tell the IRA custodian that you want to recharacterize yiur IRA contribution to the other type of IRA.   The account custodian does the recharacterization and must calculate the earnings (if any) and transfer that also.    The custodian should tell you the amounts.

They will issue a 2021 1099-R with a code R in box 7 and the total (contribution plus earnings) in box 1.

[dhuynh44]

Thank you for all of your answers.  So for example, if I contributed $1000 to Roth which I was not supposed to and want to recharacterize it to traditional, I simply tell my institution to recharacterize the $1000 I contributed and they will automatically calculate the earnings for me and transfer that amount over to traditional?  Then on TurboTax I report that I recharacterized the $1000 as to not pay the penalty?  Then for tax year 2021 I report again the recharacterization?  Just want to make sure.... thank you

[macuser_22]

---

@dhuynh44 wrote:

Thank you for all of your answers.  So for example, if I contributed $1000 to Roth which I was not supposed to and want to recharacterize it to traditional, I simply tell my institution to recharacterize the $1000 I contributed and they will automatically calculate the earnings for me and transfer that amount over to traditional?  Then on TurboTax I report that I recharacterized the $1000 as to not pay the penalty?  Then for tax year 2021 I report again the recharacterization?  Just want to make sure.... thank you

---

Correct.   Most financial institutions have a form for you to fill out for this.

[dhuynh44]

On average how long does it take institutions to recharacterize funds once an order is put in?  And how does one find out how much was recharacterized with earnings?