Roth recharacterization then backdoor, how to in Turbo Tax

[slscholtz8]

Hi, in 2024 I contributed to a Roth IRA in March (have to married file separately this year, so above income limits now), so subsequently recharacterized in December to a traditional IRA. Given the income limits, I then did a backdoor conversion of the traditional IRA to a Roth IRA. I received two 1099-R forms this year, one with code 2 and one with code N (see details below), the code 2 form presumably for the Traditional IRA conversion to Roth, and the code N for the recharacterization of my prior Roth to Traditional IRA. I've found lots of instruction about how to list the backdoor roth conversion on TurboTax, but not both a recharacterization and conversion in the same 2024 year. When I try to include both, I am getting a penalty error. Any specific guidance would be appreciated! Here are additional details:

3/20/24 - contributed $7,000 to Roth IRA

12/24/24 - recharacterized $7456.96 in Roth IRA to Traditional IRA

12/30/24 - converted $7459.15 from traditional IRA to Roth IRA (backdoor conversion) (I'm assuming slightly higher amounts as it was increasing slightly in value?)

What I have tried in TurboTax:

In Wages and Income, under 1099-R: Added both 1099-R's:

1. Inputting 1099-R's

1st: $7456.96 (Box 1), $0 taxable amount (Box 2a), total distribution is checked, distribution code N (Box 7), IRA/SEP/SIMPLE box is unchecked.

2nd: $7459.15 (Box 1), $7459.15 (Box 2a), Box 2b Taxable amt not determined box is checked and Total distribution is checked, Distribution code 2 (Box 7), IRA/SIMPLE/SEP box is checked

2. When asked about special situations - answered No

3. 'Tell us if you moved the money through a rollover or conversion' - Answered 'I converted some or all of it to a Roth IRA' (other answers were 'I rolled over some or all of it to an IRA or other retirement account within the time limits normally 60 days), 'I did a combination of rolling over and converting some or all of this money', or 'I didn't roll over or convert this money'.

4. 'Did you convert all of this $7459.15 (Box 1) to a Roth IRA? Answered Yes, all of this money was converted to a Roth IRA (other options were I didn't convert any of this money, or No, I converted less than $7459.15)

Total 1099-R info summary shows both 1099-R forms with 'Total' of $14,916.11

5. Disaster distributions? No

6. Any non-deductible contributions to your IRA? Let us know if you made and kept track of any nondeductible contributions to your traditional IRA from 2023 or prior years.

- Answered No because I haven't done this in prior years

7. 'Tell us the value of your traditional IRA - enter the total value of traditional IRA accounts on 12/31/24, sent by mail on form 5498, do NOT include Roth IRAs. Enter any outstanding 2024 rollover and recharacterizations that were not completed until 2025' - Entered 0 for all including 'outstanding recharacterizations' because all of the recharacterization occurred in 2024, not 2025

8. Explain your Recharacterization - described original contribution on 3/21/24 with recharacterization on 12/24/24 for $7457 from Roth IRA to traditional IRA given over income threshold.

PART II: Under Deductions and Credits -> Traditional IRA and Roth IRA

Clicked BOTH traditional IRA and Roth IRA (because I did recharacterize the prior Roth first)

1. Is this repayment of a retirement distribution? No

2. 'Tell us how much you contributed - total mount you put into a traditional IRA for 2024, even if you later transferred some or all of it to a Roth IRA. Do NOT enter Roth contributions (even if you later recharacterized them to a traditional IRA) or Rollovers".

--- Entered $7459.15

--- 'Tell us how much of the above contribution for 2024 you contributed between Jan 1 2025 and April 15 2025": $0

3. 'Did you change your mind? Tell us if you recharacterized any of the 7459 traditional IRA contribution for 2024 over to a Roth IRA contribution" Answered NO

4. 'Any excess IRA contributions before 2024? Tell us if you contributed more money to your IRA than was allowed in 2023 or any previous year' Answered NO

5. 'Any non-deductible contributions to your traditional IRA from 2023 or prior years?" Answered No because I haven't done this in prior years

6. Tell us the value of your traditional IRA accounts "Enter or verify the value (ending balance amount) of all your traditional IRA accounts on 12/31/24, this information is sent by mail on form 5498. Include any IRA contributions you made or will make in 2025 for 2024" Entered $0

7. "Is this repayment of retirement distributions?" No

8. Enter your Roth IRA contributions: $7000

9. 'Tell us how much you transferrred. How much of the 7000 that you contributed ot your Roth IRA did you switch or 'recharacterize' to your traditional IRA': $7455.96

10. Roth IRA explanation statement:

         Date of the Original Contribution: 3/21/24

         Date of the Recharacterization: 12/24/2024

         The Amount Recharacterized: $7457.

         The Amount Transferred (Recharacterization plus earnings or losses): $7456.96

         Reason for the Recharacterization: Recharacterize Roth IRA to traditional IRA given over income threshold

11. Let us track your Roth IRA basis - answered No

12. Do you have any excess roth contributions (in 2024 or any previous year?) No

13. 'Income too high to deduct an IRA contribution - your MAGI is over the limit for IRA deductions'. Continue.

14. 'You currently have a penalty - Because you made an excess contribution of $7916 to your traditional IRA, you will owe a 6% penalty ($474) each year that excess money remains in the IRA. But don't worry, you can remove this penalty by taking action before 4/15/25. Enter any excess contribution that you withdrew before April 15,2024.

--- "Excess contribution withdrawn before due date of your return" = So far have entered nothing

Your IRA deduction summary: $0

[DanaB27]

In the IRA contribution interview you will only enter the Roth IRA contribution and then indicate in the follow up questions that it was recharacterized. Please delete the Traditional IRA contribution entry.

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". 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.

[fanfare]

you can completely ignore and discard the 1099-R with code N.

recharacterization means you did not make a Trad IRA contribution, you  made a Roth IRA contribution, which you also do not have to enter on your tax return,

unless you are keen to have TurboTax track your Roth contributions.

@slscholtz8 

[slscholtz8]

If I delete the traditional IRA entry, then how do they know that I did the backdoor Roth conversion - is it because all of that information was already asked in the 1099-R section prior?

Thanks!

[DanaB27 · Accepted solution]

 A backdoor Roth has two parts the nondeductible Traditional IRA contribution and the Roth conversion. You fulfilled the first part when you entered the Roth IRA contributions and indicated in the interview it was recharacterized as a Traditional IRA contribution and then made it nondeductible. TurboTax will add the basis on line 1 of Form 8606. The conversion part is entered when you enter your Form 1099-R and indicate in the follow-up questions that it was converted to a Roth IRA.