Recharacterize from Roth IRA to Traditional. Then Backdoor back to Roth IRA.

[Anonymous]

I followed the steps here for Recharacterizing from Roth IRA to Traditional, it works good:

https://ttlc.intuit.com/community/retirement-income/help/how-do-i-recharacterize-a-roth-ira-contribu...

I overcontributed 3,950 (recharacterized amount)

However, I revisited the IRA section here, checked on the box for Traditional IRA to enter backdoor roth back to Roth IRA: https://ttlc.intuit.com/community/entering-importing/help/how-do-i-enter-a-backdoor-roth-ira-convers.... @DanaB27 

I'm able to go through Step 1, 1 to 7. Where for 6, contribution to Traditional IRA is 3,950. However, I'm not able to get to 8: Choose Not to Deduct IRA Contributions. I was asked whether i tracked non deductible contributions, IRA basis, repayment distribution etc. Then, it goes on to the Roth IRA section. And as I clicked through Roth IRA section again, it says I have a penalty.

[DanaB27]

Please follow these steps to enter your recharacterization and make it nondeductible, do not enter anything under traditional IRA unless you made a direct contribution to it. 

You will enter the recharacterization when you enter the contribution to the Roth IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Deselect "Traditional IRA" to delete it
5. Select “Roth IRA”
6. Click "Continue" and confirm the deletion of your traditional IRA entry
7. Answer “No” to “Is This a Repayment of a Retirement Distribution
8. Enter the Roth contribution amount 
9. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
10. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
11. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning that your income is too high to deduct the contribution. This is what you want and the next screen will say $0 is deductible)

[Anonymous]

Thanks of the quick response! I have no trouble with inputting the Recharacterization, was able to go through the screen where it says my IRA deduction is 0. 

However, how can i capture the Backdoor back to Roth IRA (after Recharacterization) if I deselect Traditional IRA?

[DanaB27]

When you enter the recharacterization, it will be treated as a contribution to the traditional IRA and when it is nondeductible then TurboTax will create Form 8606 with a basis in line 1. This is the first step of the backdoor Roth.

The second step is to enter the conversion. If you have recharacterized your 2021 Roth contribution in 2022 then the conversion will happen in 2022 and belong on your 2022 tax return. You will have a basis on your 2021 Form 8606 line 14 to carry to your 2022 tax return.

On your 2022 tax return:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@Anonymous

[confusedmeghan]

Hello, I followed these instructions up to step 8: 

1. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”

I never am asked this question, or any of the questions you say should follow it, so there is no way for me to enter in the backdoor conversion.

[DanaB27]

If you are using TurboTax Online the questions are a little different:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@confusedmeghan

[confusedmeghan]

1. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”

It didn't ask me this either.

[DanaB27]

What is your code in box 7?

Are you getting these screens:

1. On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen 
2. On the "Did you move the money to a Roth IRA?" screen 

Can you provide more details about your situation?

@confusedmeghan

[Anonymous50]

For last tax year 2021, I re-characterized from Roth IRA to Traditional, and subsequently move that back to Roth IRA. Recharacterized basis for 2021 is $3,950, but with losses of $276 and total amount recharacterized was $3,674. I filed 8606 basis $3,950 for tax year 2021.

For tax year 2022, I did another back-door IRA for $6k (2022 contribution), contributing to Traditional and the move to Roth IRA. I received 2 1099Rs and 2 5498s in 2023 for tax year 2022.

- Traditional IRA 1099R: $9,748 as distribution

- Roth IRA 1099R: $3,674 as distribution

- Traditional IRA 5498: $6,000 contribution and $3,674 recharacterized contribution

- Roth IRA 5498: $9,748 as Roth conversion

For tax year 2022,  under Wages & Income - IRA, 401k, 1099R section:

Do I enter both Traditional IRA and Roth IRA 1099Rs?

- I entered Tradition IRA 1099R, select "I converted some or all of it to a Roth IRA", select "Yes, all money was converted to a Roth IRA" for entire amount $9,748

- But when I enter the 2nd 1099R for Roth IRA with distribution $3,674, it prompted me to amendment 2021 tax return.

Under Deduction & Credits - Traditional & Roth IRA section:

- Do I enter $6,000 or $9,748 as 2022 traditional contributions?

- Do I enter $6,000 or $9,748 as amount switch from Tradition to Roth?

- Does my Total Basis 31 Dec 2021 change from $3,950 to $3,674?

- Why am I getting "income is too high to contribute" penalty? This shouldn't happen since a) recharacterization to fix excess 2021 Roth IRA contribution was fixed last year, b) 2022 contributions of $6k was done through Backdoor method.

- Where do I enter the losses of $276? Can I claim credit?

- Does it matter if the 2021 Roth conversion $3,748 (derived by subtracting $6,000 from $9,748) differs from $3,674 (recharacterized contribution)?

@DanaB27 Appreciate your help!!

[DanaB27]

1) On your 2022 tax return you will enter $6,000 as the nondeductible traditional IRA contribution for 2022. You should have entered the recharacterization of the 2021 contribution on your 2021 tax return and have a $3,950 (amount contributed to Roth for 2021) basis on line 14 of your 2021 Form 8606. You will enter this during the IRA interview on your 2022 tax return when TurboTax asks about prior nondeductible contributions.

2) You won't enter anything as switched during the 2022 IRA contribution interview.

3) Your total basis for 2021 is $3,950 (the amount that you contributed to the Roth IRA but are deemed to be contributed to the traditional IRA because of the recharacterization).

4) It seems you entered the conversion incorrectly. Do not enter the conversion in the IRA contribution interview (as switched traditional IRA to Roth). You will indicate the conversion when you enter your Form 1099-R for $9,748

Please review the instructions below.

On your 2021 tax return to enter the recharacterization:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since you are doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

On your 2022 tax return to report the contribution and conversion:

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@Anonymous50 

[Anonymous50]

Thank you! I did based on your instructions in the previous post

1) Why did my tax payable increase after entering the both the 1099R and non-deductible traditional IRA sections? I thought this is a back-door approach and the tax due should stay the same after entering IRA information.

2) Do I need to enter separate 1099R details for Roth IRA (I receive another 1099R for Roth IRA)

3) Do I need to check off "Roth IRA" section under Deductions/Credits and enter separation Roth IRA details on top of the Traditional IRA already done as your instructions?

4) For Tell Us the Value of Your Traditional IRA section, would outstanding rollover be "0" and outstanding recharacterization be 3,674?

[DanaB27]

1) You might have to review your entries. If you entered everything correctly and didn't have earnings with the conversion then the full amount would be non-taxable. To verify, your balance (value) of your traditional/SEP/SIMPLE IRAs at the end of 2022 was $0?

2) If your 2022 Form 1099-R for the Roth has code R for the recharacterization then you do not need to enter it. If you have an additional 2022 Form 1099-R for a Roth distribution then you will have to enter it. Select "add Form 1099-R" on the "Review your 1099-R info" screen.

3) No, if you didn't make a direct Roth IRA contribution for 2022 then you will not enter anything for the Roth IRA contribution interview on your 2022 tax return.

4) Yes, the outstanding rollover is "$0" but your outstanding recharacterization on the 2022 return would be $0. 

@Anonymous50 

[Anonymous50]

I'm now filling the tax year for 2023. I checked that the tax form 8606 filed in 2022 has "$202" on line 14. Based on this example last year, "$202" is derived from "$9,748" (line 13) minus "$9,950 (line 3).

However, when I am asked the question on Traditional IRA basis as at 31 Dec 2022, when I'm filing the 2023 tax year, I indicated the amount "$202", but gotten a message that "we transferred a total basis in all our traditional IRAs of zero for all years through 2022. We calculated a different total basis of $202 from your entries on the previous screen. Your basis cannot be less than zero".

Is my total basis $202 or $0? I thought line 14 in previous 8606 will be transferred over to line 2 to this years 8606

@DanaB27 

[DianeW777]

Yes, you are correct.  $202 is the cost basis for your IRA and it must be entered when you are asked about your Traditional IRA basis from 2022.  Line 14, Form 8606 is the correct cost basis that you must carry forward to 2023.  When you review your Form 8606, make sure it has the correct number on Line 2.

• TurboTax Online: Can I print a copy of my return before filing with TurboTax Online?
• TurboTax Desktop: Change to Forms mode (upper right) to review your Form 8606 before finalizing your return.

@Anonymous50