Seem to be double taxed

Forum|Forum|3 years ago
April 8, 2023
2 replies
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Hi I am currently trying to file my tax report using turbotax premier.
I had to do recharacterize/conversion (roth to traditional and back to roth ira due to unexpected financial change).
I received 4 forms of 1099R(marked for 2022) (2 for me and 2 for my wife - we both did the same thing R to T and T to R ira). Although they are marked 2022, but for 2021.
since we knew our income(agi) will not be greater than 200k this year thus we contributed to our roth IRA account.

I did import forms from the fidelity (my retirement bank) then the 4 forms were automatically imported.
when I when through the turbo tax, it shows me that I need to pay the tax due to taxable income, which is the sum of the recharacterized IRAs (me and my wife - joint filing).

why is the total of the recharacterized/converted contributions

are taxable? Since I payed the tax for the roth ira (before recharacterization), it is double taxed.

fanfare

Level 15

it would be easier if you do not import those 1099-Rs and just report the net result, because the unwanted effect have to be unwound with the proper Q&A which can be troublesome.

@tobyicnoise

fanfare

Level 15

recharacterization: the original amount to the first IRA you report as contribution to the second IRA, earnings are ignored.
report this on your tax return for the year during which the contribution was made.

return of excess contribution:

before tax due date including extensions: positive earnings allocable to the excess are taxable on the Line 4b for the year of the contribution. negative earnings are ignored; therefore, do report the entire requested amount as returned .

positive earnings removed are penalized 10% if you are under age 59 1/2.

after tax due date including extensions: you distribute the excess amount being carried forward on 5329,

(or offset it with currently allowed contribution) .

Earnings stay in the Roth account.

if you are doing a backdoor Roth, the contribution into the Traditional IRA has to be designated non-deductible

@tobyicnoise

fanfare

Level 15

since you are not doing a return of excess contribution,

you can ignore that part.

@tobyicnoise

tobyicnoiseAuthor

Level 2

to show the grand total of distributions on Line 4a and make the IRS happy, include all 1099-Rs.

the recharacterization is a contribution, obviously not taxable.

assuming your Traditional IRA was empty before,

the conversion to a Roth is not taxable if the contribution above was marked non-deductible.

Net result : no tax, line 4b should be zero.

if you had money in the Traditional IRA before, you can't do a backdoor Roth so there would be tax on the Roth conversion, prorated against your IRA basis.

@tobyicnoise

sorry for any confusion

Thank you again for quick response.

I just realized that my 1099R with distribution code 2 and IRA/SEP/SIMPLE marked as X has non-zero taxable amount. This 1099R is for conversion (Traditional to Roth conversion) and I think the taxable amount should be 0. This is fundamentally why turbotax makes me pay double taxes.

The confusion part is that this 1099R (marked 2022) is for 2021 contribution (Roth to Tranditional (recharacterization) and back to Roth (conversion)). However, the recharacterization and conversion for this 2021 was done in 2022. Thus, the forms marked as 2022 version.

Also, in turbotax, to fill out 8606 form, I had to say

* Traditional IRA and Roth IRA section: I need to check both Traditional and Roth IRA

* Tell use how much you contributed: do I need to put the recharacterized amount here?

Since the recharacterization was for 2021, I also contributed Roth for 2022. I expected that my MAGI is not going to be over the limit.

Then, the turbotax think I contributed both recharacterized contribution (again it was for 2021) and roth ira contribution (for 2022). And, it tell me that I contributed more than my combined limit for 2022.

I don't know how to deal/split this two event. Thank you!