Reporting the recharacterization of excess Roth IRA contributions

[vacationmode_20]

In April 2020, I contributed $4000 to my Roth IRA, but I found out while going through Turbotax this year that I'm not eligible to contribute to my Roth. In March 2021, I then contacted my retirement account manager and recharacterized the $4000 contribution and $2000 in earnings into my Traditional IRA (will be nondeductible).  They told me I would receive a 1099R early next year, 2022.

How do I report this for my 2020 tax year without having to wait until 2022 to receive the 1099R to file an amendment? And are there any other forms I will need to file besides my 1099R?

Thanks!
(Edit: using Turbotax Deluxe Windows edition)

[macuser_22 · Accepted solution]

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@vacationmode_20 wrote:

In April 2020, I contributed $4000 to my Roth IRA, but I found out while going through Turbotax this year that I'm not eligible to contribute to my Roth. In March 2021, I then contacted my retirement account manager and recharacterized the $4000 contribution and $2000 in earnings into my Traditional IRA (will be nondeductible).  They told me I would receive a 1099R early next year, 2022.

How do I report this for my 2020 tax year without having to wait until 2022 to receive the 1099R to file an amendment? And are there any other forms I will need to file besides my 1099R?

Thanks!
(Edit: using Turbotax Deluxe Windows edition)

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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.

[vacationmode_20]

Oh I see, I wouldn't need to specifically file the 1099R.  I can just inform the IRS of the recharacterization due to excess contributions by completing the IRA interview section.   I guess I was just confused about whether or not the earnings due to excess contributions were taxable, but with the recharacterization, the earnings are just transferred over to the Traditional account.

Thanks for your detailed reply!

[cantdrive55]

So this thread is really helpful as I find myself (now in 2022, and trying to do my 2021 taxes) in the future scenario mentioned in this post from last year, having now received my 2021 1099-R after the recharacterization.

Just like the original poster, I over-contributed to my Roth IRA in 2020 and didn't realize it until 2021.  But I did realize it before I filed my 2021 taxes and recharacterized the excess contributions to a brand new non-deductible IRA before filling my 2021 taxes.  I also then converted the whole of the non-deductible IRA right back into my Roth, as is popularly done.

When going through the TurboTax workflow last year in 2021 (working on my 2020 taxes), I told it about the recharacterization, and added the note to my tax-return saying that I "recharacterized ____ in contributions and ____ with gains" (whatever the TurboTax template told me to say).  I also filed a form 8606 to note the non-deductible IRA contribution.

I tried really hard last year and did tons of research in hopes that I was doing everything correctly.  So fast forward to now (Jan 2022).

My IRA institution sent me two 1099-R forms for 2021.

• One for my recharacterization from Roth to a non-deductible IRA, with distribution code "R"
• One for my conversion from the non-deductible IRA back into the Roth, with distribution code "2"

When I enter the recharacterization 1099-R into TurboTax it gives me an ominous warning that "I may need to amend my 2020 tax return".  Okay, wtf?

So now I'm scratching my head with the following questions.

1. Do I actually need to amend my 2020 return?  I don't see what good that would do.  And if it's true that I must amend, what in the world do I put in there that I didn't already? (see above paragraph about already mentioning recharacterization in original 2020 return)
2. I recognize that I must pay taxes on the gains from the recharacterized contribution that I converted back into the Roth.  Back in 2021, I had convinced myself that I would pay those taxes in 2022 for the 2021 tax year since the conversion happened in 2021.  Is my understanding accurate that I will account for those gains now for the 2021 tax year?  And if so, how do I accurately input this information into TurboTax?

--Editing this to also ask about an earlier reply that I didn't quite understand--

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.

I'm still not sure what to do with my 1099-R from my recharacterization.  Do I put it in my 2021 return and ignore the "you may need to amend your 2020 return" message from TurboTax?

Does "but it still must be reported on your 2020 tax return"  just mean to do what I did above (note the recharacterization in the 2020 return)?

Thanks for any input, it's really appreciated.  Hopefully this question will help the other people in my situation that are also wondering whether they need to amend.

[macuser_22]

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@cantdrive55 wrote:

So this thread is really helpful as I find myself (now in 2022, and trying to do my 2021 taxes) in the future scenario mentioned in this post from last year, having now received my 2021 1099-R after the recharacterization.

Just like the original poster, I over-contributed to my Roth IRA in 2020 and didn't realize it until 2021.  But I did realize it before I filed my 2021 taxes and recharacterized the excess contributions to a brand new non-deductible IRA before filling my 2021 taxes.  I also then converted the whole of the non-deductible IRA right back into my Roth, as is popularly done.

When going through the TurboTax workflow last year in 2021 (working on my 2020 taxes), I told it about the recharacterization, and added the note to my tax-return saying that I "recharacterized ____ in contributions and ____ with gains" (whatever the TurboTax template told me to say).  I also filed a form 8606 to note the non-deductible IRA contribution.

I tried really hard last year and did tons of research in hopes that I was doing everything correctly.  So fast forward to now (Jan 2022).

My IRA institution sent me two 1099-R forms for 2021.

• One for my recharacterization from Roth to a non-deductible IRA, with distribution code "R"
• One for my conversion from the non-deductible IRA back into the Roth, with distribution code "2"

When I enter the recharacterization 1099-R into TurboTax it gives me an ominous warning that "I may need to amend my 2020 tax return".  Okay, wtf?

So now I'm scratching my head with the following questions.

1. Do I actually need to amend my 2020 return?  I don't see what good that would do.  And if it's true that I must amend, what in the world do I put in there that I didn't already? (see above paragraph about already mentioning recharacterization in original 2020 return)
2. I recognize that I must pay taxes on the gains from the recharacterized contribution that I converted back into the Roth.  Back in 2021, I had convinced myself that I would pay those taxes in 2022 for the 2021 tax year since the conversion happened in 2021.  Is my understanding accurate that I will account for those gains now for the 2021 tax year?  And if so, how do I accurately input this information into TurboTax?

--Editing this to also ask about an earlier reply that I didn't quite understand--

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.

I'm still not sure what to do with my 1099-R from my recharacterization.  Do I put it in my 2021 return and ignore the "you may need to amend your 2020 return" message from TurboTax?

Does "but it still must be reported on your 2020 tax return"  just mean to do what I did above (note the recharacterization in the 2020 return)?

Thanks for any input, it's really appreciated.  Hopefully this question will help the other people in my situation that are also wondering whether they need to amend.

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The 1099-R code R does nothing in TurboTax.   You report the recharacterization in the IRA contribution section and it produces a 8606 form which you say you filed - so you are done.

[toney35]

@cantdrive55 I too have a similar circumstance with regards to your first bullet and question #1. To clarify, did you end up amending your 2020 return? Why or why not? Thank you!

[cantdrive55]

@toney35, no, I didn't end up amending.  I looked around a little more and all the information I could find seemed to match well with what @macuser_22 said above.  Essentially, as long as one documents the recharacterized contributions as non-deductible in form 8606 and includes a note explaining the recharacterization (Line 4a Explanation Statement), then there's no need to amend.  However, if you hadn't done those things, you should probably amend your return and do so - at least that's my takeaway.

If anybody from TurboTax is listening, it would be nice if some of these messages are better explained.  "You may need to amend your old return" isn't very helpful.  Plus, you'd think TurboTax could just look at my previous return and determine what I did or didn't do.

[macuser_22]

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@cantdrive55 wrote:

@toney35, no, I didn't end up amending.

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It depends on what tax year the contribution was *for*, not made.   If it was for 2020 then the recharacterization  can only be reported on an amended 2020 tax return and if non-deductible on a 2020 8606 form.  If the contribution was *for* 2021 then it is reported on  2021 tax return.

[toney35]

Thank you both. Yes, I have a similar circumstance as @cantdrive55 whereby I contributed to my Roth IRA for 2020, only to re-characterize the 2020 contribution to a traditional IRA before filing my tax return in 2021. I filed a 8606 and included a note explaining the re-characterization when filing my 2020 return, so I agree I do not believe there is any further action or need to amend. 

[imjfarley]

Same thing happened to me. I still have some questions though.  If an explanation statement was made on 8606 for the recharacterization would it be in the PDF of the tax return?

Since you are not amending your 2020 return are you just not entering the 1099-R anywhere?  I just read in some Turbo Tax instructions for a previous year recharacterization that you should put in the information for the 1099-R which you expect to receive at a later date on your taxes.  Would of been nice if Turbo Tax would of walked me through that when entering the recharacterization last year. 

[RobertB4444]

If you have an explanation statement on your 8606 then it should be in the pdf of the return.

As @macuser_22 says above the contribution is entered in the year that it is FOR, not the year that it is made necessarily.  @toney35 entered the contribution to his 2020 return when he filed it with his 8606 so he doesn't need to amend - it was already included.  

And you are correct - if you have made or are going to make a contribution to your IRA after the end of the year but before the due date of the tax return then you can (and should!) include that contribution on your current year tax return even though you won't receive the 1099-R until January of next year.

[imjfarley]

Thank you for the reply.  I found the PDF statement in my tax return which explains that I recharacterized my Roth to a Traditional bc AGI was over the allowable amount.  Also, on the form 1040 4a it says STMT under attach column but there is no amount listed in the box for 1040a.  The amounts are explained on the statement which is later in the return.  The 8606 form is correct on the 2020 return showing a contribution to a Traditional IRA. I think I am good and do not have to amend my 2020 return to include the 1099-R which I just received and has a 2021 date.  I also checked with one of the Turbo Tax experts on a phone call today and he explained that I am good and do not need to amend my 2020 return and I should just file the 1099-R.  I don't want to put the 1099-R on my 2021 return because the distribution was for a rollover for a 2020 contribution, correct?

[DanaB27]

Yes, if you reported the recharacterization on your 2020 tax return, then you can ignore Form 1099-R with code R.

If you converted the funds from a traditional IRA to a Roth IRA in 2021 and received a 1099-R for it then you will have to enter this 1099-R on your 2021 tax return:

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 "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 from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@imjfarley