Report recharacterization of Roth IRA?

[Chrispy650]

First time contributing to a Roth IRA and contributed $6k for the 2020 year in the first week of Jan 2021. Received my W2 later and realized the bonus kicked me over the MAGI for max contribution. I recharacterized my Roth IRA into tIRA and then the next day converted it all back to the Roth IRA. I'm using TurboTax to file my taxes and found a link on how to answer the questions for a typical backdoor Roth IRA (i.e. contributing to the tIRA first and then converting all to Roth) but am unsure on how I report the recharacterization. At this point it would just look like I did a typical backdoor Roth but would I need to document the recharacterization as well (I assume the answer is yes but not really sure how). Would I still get any 1099-R forms if I did the recharacterization/conversion in 2021 or would those only come next year and would need to fill out boxes accordingly without?

[DanaB27 · Accepted solution]

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

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and amount (no earnings or losses)
8. 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.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes"

You will get two 1099-R in 2022 for 2021.

One 1099-R will be for the (backdoor) conversion from traditional IRA to Roth IRA and will be entered on your 2021 tax return. Please see How do I enter a backdoor Roth IRA conversion? for additional detail how to enter this in your 2021 tax return.

The second 1099-R will be for the recharacterization with code R-Recharacterized IRA contribution made for 2020 and belongs on the 2020 return. But a 1099-R with code R will do nothing to your 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.

[Chrispy650]

@DanaB27 - Very helpful, thanks! Regarding the conversion (from tIRA to Roth) - I don't need to document this for the 2020 tax return? Is this because it occurred in 2021 even though it was for the 2020 year?

Additionally, say I do a backdoor roth the clean way next time around and before Dec 31 2021 (for the 2021 year) and contribute $6k to the tIRA and then convert to my Roth - will this complicate things for next year?

[DanaB27]

Yes, the 1099-R regarding the conversion from traditional IRA to Roth you don't need to enter on the 2020 tax return because it occurred in 2021 and therefore goes o your 2021 tax return. You will receive the 1099-R in 2022 for your 2021 tax return.

No, it will not complicate things if you make another backdoor Roth contribution in 2021. On you 2021 tax return you will enter the traditional IRA contribution and make it nondeductible:

1. Login to your TurboTax Account 
2. Click on the Search box on the top 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 contribution amount 
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes"

And then for the 2 conversions you enter the 1099-R(s):

1. Click on the Search box on the top 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 "Your 1099-R Entries" 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

[chrish3]

I am not receiving the question regarding Any non-deductible contributions to IRA?  How do I get this question to come up?

[chrish3]

How do I get this question to come up?  Choose Not to Deduct IRA Contributions

[macuser_22]

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@chrish3 wrote:

How do I get this question to come up?  Choose Not to Deduct IRA Contributions

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If your MAGI is too high to get a deduction the  it is automatically non-deductible so the question is not necessary.   The last screen should tell you that.

[DanaB27]

If you have a retirement account at work and are above a certain income limit then your traditional IRA contribution will be nondeductible. You will not get the screen to choose to make it nondeductible but instead it will say you have $0 IRA deduction. TurboTax will create Form 8606 to track your basis.

@chrish3

[chrish3]

Thanks for the response will an 8606 be generated?

[npierson7]

 Yes, TurboTax will automatically generate Form 8606 and include it in your tax return.

[fdj]

I have the same issue except that I have earnings that I need to report on the $6000 Roth contributions in 2020 before I recharacterized it from Roth to traditional IRA this February and then rolled it back into my Roth. How to I accomplish this in the software. this is the only item stopping me from filing

[DanaB27]

You will enter the recharacterization when you enter the contribution to the Roth IRA in your 2020 tax return:

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 “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount $6,000
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount $6,000 (no earnings or losses)
8. 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.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

You will get two 1099-R in 2022 for 2021.

One 1099-R will be for the recharacterization with code R-Recharacterized IRA contribution made for 2020 and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your return. You can only report it as mentioned above. 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 second 1099-R will be for the (backdoor) conversion from traditional IRA to Roth IRA and will be entered on your 2021 tax return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. 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”
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contributions to your IRA?"
8. Answer the questions about the basis and value.

@fdj

[lyk]

I have same issue and will convert the extra amount from the tira back to the roth.  I had plan to do a roth to tira for 2021 already before this issue came up.  Should I do it together with this extra amount or keep it separate. and do a second conversion at a later time? 

[DanaB27]

To clarify, you need to recharacterize your 2020 Roth contribution as a traditional IRA contribution and then you want to convert it to a Roth contribution.

The recharacterization will be reported on your 2020 return:

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 “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. 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.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes"

On your 2021 tax return you will report the conversion:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. 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”
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
8. Answer the questions about the basis and value

If this doesn't answer your question then please provide more details.

@lyk

[guitargirl]

Thank you so much for this.  I did my Roth on 12/31/20 and then realized with all the 1099's and a K1 and a bonus I was over too.  Until I saw this, after reading the IRS code like 10x and still not completely sure, I was going to have to go to a CPA for this one thing.  TY so much for posting this.  This was all that was holding me back from filing.  I only needed the first section, as going forward my income has increased enough that all my IRA contributions will be Traditional Non-deductible again.