Recharacterization and Backdoor Roth Conversion Reporting Question

[Dzongrila]

Hi @DanaB27

I've just started a Recharacterization process from my Fidelity Roth IRA account to a Traditional IRA account (opened today just for this purpose) as I've made an excess Roth IRA contribution in 2025 (well above the MAGI limit). I don't have any other IRA accounts....The eventual goal is to do a Backdoor Conversion of the entire amount from the Trad IRA to the Roth IRA once the fund settles, thus leaving the balance of the Trad IRA account as $0.

I plan to follow the steps mentioned in these two posts while filing my taxes in Turbo Tax for the year 2025, exactly in this order once my Backdoor Conversion process is completed:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-income/recharacterize-roth-ir...

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...

The email that I've received from Fidelity after submitting my Recharacterization request includes a Note that says - The amount of the recharacterization reported on your next statement and your Fidelity issued tax forms may be slightly different than this calculation due to intra-day price fluctuations of the securities recharacterized. 

Here, I must mention that I did the Recharacterization in-kind by moving my Shares from my Roth IRA to the Trad IRA account, instead of cash.

Will it be a problem if I go by the numbers mentioned in today's email to file my taxes but if the numbers are slightly different when I get the 1099-R next year? Is that a red flag? 

My plan is to report the recharacterization as well as the backdoor conversion on my 2025 tax return following the above two links...will you recommend against it or is this the right approach?

[baldietax]

contributions/recharacterizations can be backdated to the prior tax year but the subsequent conversion back to Roth as part of a backdoor process is reported in the calendar year it is done, so next year you will get a 1099-R for the conversion for tax year 2026, which will have a finalized market value for whatever was converted.

this backdoor conversion split across tax years is normal situation when backdating the contribution, referred to in the Backdoor Roth page you referenced:

• If you'll receive a 2026 1099-R in 2026, wait to report it on your 2026 taxes. In this case, only complete Step 1 below for your 2025 taxes. You’ll complete the second step next year when filing your taxes for 2026.

so for 2025 taxes - you would report the contribution & recharacterization only, and the end result will be a non-deductible contribution to your Trad IRA (for the original amount of the contribution), reported on Form 8606 Lines 1 & 14 which will carry forward the basis for 2026 when you report the conversion.

when you enter the recharacterization you will provide the market value that was moved back to Trad IRA and an explanation statement, but the market value of the Trad IRA doesn't matter until you convert it (and you will be taxed on any gains thru this whole process).  I'm not 100% certain if there is any other issue if the final market value changes a bit but I don't think it affects your 2025 return.

perhaps @DanaB27 or @dmertz can confirm any other issues.

[Dzongrila]

That's an interesting perspective and may be correct as well. However, a couple of days ago when I had set up an appointment with a TT Expert and talked to him for a while, I literally read out all the steps mentioned in the two links that I've shared and he confirmed that I am on the right track (including Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA)...but it's possible he may not have fully understood or missed some key points during our conversation....

Hopefully  @DanaB27 or @dmertz or @RogerD1 will tell me what's the right way to approach this...

[Dzongrila]

I think you're absolutely right........confirmed by multiple posts...glad that I posted asking about this or else I'd have made the wrong assumption !! Thank you so much...

https://ttlc.intuit.com/community/retirement/discussion/re-if-i-performed-a-backdoor-conversion-from...

https://www.reddit.com/r/Bogleheads/comments/1r180fm/comment/o4ntclk/

https://ttlc.intuit.com/community/retirement/discussion/i-did-a-late-backdoor-roth-conversion-in-202...

[dmertz]

As noted above, your Roth conversion will be a 2026 transaction reportable on your 2026 tax return, not on your 2025 tax return.  Line 14 of your 2025 Form 8606 will carry forward to line 2 of your 2026 Form 8606.

Regarding the in-kind recharacterization, until you receive the 2026 Form 1099-R it's going to be difficult to know the exact value transferred to accomplish the amount of recharacterization that you requested.  However, for the purpose of preparing your 2025 tax return, it doesn't really matter.  All that really matters for entry into 2025 TurboTax is the amount of contribution that you requested to be recharacterized (the entire contribution, I imagine).  Normally your explanation statement regarding the recharacterization would mention both the amount recharacterized and the amount transferred, but it should be sufficient to simply say that Fidelity calculated and transferred the gain/loss-adjusted amount that needed to be transferred to accomplish the recharacterization.  (I doubt that the IRS will ever read this explanation statement.)

When the code-R 2026 Form 1099-R reporting the recharacterization arrives, you can ignore it.  The explanation statement included with your 2025 tax return takes its place.  If you do enter this Form 1099-R into 2026 TurboTax, 2026 TurboTax will remind you that the recharacterization needed to be reflected on your 2025 tax return (as a traditional IRA contribution).  If you enter this Form 1099-R into 2025 TurboTax, 2025 TurboTax will ignore it.

[Dzongrila]

Thanks a lot @dmertz for your response....it helped me understand what I should do next....

Just a few more Qs so that I can complete my tax filing for 2025 now that I know I can report the Conversion only in 2026...

I completed the Recharacterization from my Roth IRA to Traditional IRA after business hours yesterday, I believe it'll take a few days (or at least till Monday morning) for the funds to 'settle' (in-kind using Shares, not Cash) before I can initiate the Backdoor Conversion. This is the email that I had received from Fidelity:

"We received your request to recharacterize your Fidelity IRA contribution. Based on your request to recharacterize $8000 and applicable Internal Revenue Service (IRS) regulations:

• Your total applicable earnings or loss for the computation period was $698.73
• The total amount recharacterized was $8698.73"

With this information, can I complete my Tax filing for 2025 this weekend or should I wait for the fund to settle first in my Trad IRA account? I am assuming I can follow the instructions mentioned here using the same numbers from the Fidelity email:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-income/recharacterize-roth-ir... 

So step 8 should be $8000 and Step 9 should be $8698.73,  Is that a correct assumption? Which form will this generate in Turbo Tax? Is that 5498 or something else?

Then, I'll also complete "Step 1: Enter the Non-Deductible Contribution to a Traditional IRA" following:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...

I believe this will generate form 8606.

Are these two steps good enough for filing taxes for 2025 as far as Roth Recharacterization is concerned? I'll focus on 'reporting' the 'Conversion for 2025' when I file taxes in 2026. After the dust settles on 2025 tax filing and if I end up doing a similar Backdoor Conversion this year for tax year 2026 itself (contribute to Trad IRA directly and then do a backdoor soon thereafter), will I then receive two separate 1099-R next year, one for 2025 and one for 2026?

[dmertz]

Surprisingly, the e-mail from Fidelity is misleading.  The amount of contribution recharacterized was $8,000, not $8,698.73.  $8,698.73 was the gain-adjusted amount transferred.  When TurboTax asks for the amount recharacterized, enter $8,000.  The $698.73 simply becomes investment gains within the traditional IRA.

Assuming that the resulting traditional IRA contribution is nondeductible, your Form 8606 will show $8,000, not $8,698.73, on line 1.  TurboTax will do this automatically when you enter the $8,000 Roth IRA contribution and tell TurboTax that you "switched" the $8,000 to be a traditional IRA contribution.  Telling TurboTax that you "switched" the contribution will cause TurboTax to prompt you to complete the required explanation statement.  As it turns out, you do have the information necessary to provide all of the details, including the exact amount of attributable investment gains included in the transfer.

You'll want to convert the entire amount to Roth, so the taxable amount of the conversion will be somewhere around $698.73 depending on how the share value changes between now and when you do the converison.

[Dzongrila]

Thank you @dmertz once again for your prompt response...

Kindly confirm that I am on the right track....I wrote that this is what I am going to do:

Do I still need to complete the steps mentioned here? I believe so because this also asks for "Roth IRA Explanation Statement, enter the original amount plus the amount of earnings or loss that were re-characterized" and not just the Contribution amount.

How do I re-characterize a Roth IRA contribution as a traditional IRA contribution in TurboTax? 

So step 8 should be $8000 and Step 9 should be $8698.73,  Is that a correct assumption? Which form will this generate in Turbo Tax? Is that 5498 or something else?

Then, I'll also complete "Step 1: Enter the Non-Deductible Contribution to a Traditional IRA" from the following:

How do I enter a backdoor Roth IRA conversion? 

I believe this will generate form 8606.

For #3, "On the Tell Us How Much You Contributed screen, enter the amount contributed and select Continue.", I am going to enter $8000.

And finally, is it ok to file my taxes now itself or should I wait till the Fidelity fund settles in my Traditional IRA?