Tax forms for recharacterization and conversion

[Anonymous]

I made a contribution of 4000 to my Roth IRA in Mar of 2020. Now that I a preparing my taxes for 2020 I realized in am over the income limit to make direct contribution to Roth in 2020..

In order to fix that, I made a recharacterization of 4000 to traditional IRA in Mar 2021. Funds were in loss so only 3833 came over to traditional IRA. 

(I only recharacterized the contribution made towards 2020, previous year contribution were left untouched since they are done when I was below the income limit)

My traditional IRA originally had a 500 in it, that I contributed for 2021, and its a after tax contribution.

Then I converted the 3833 + 500 from traditional IRA to Roth IRA in Mar 2021

Having said that what all tax forms should I do for 2020 and what I would have to do for 2021.

And how do I do those in Turbo tax? 

I haven't filed my taxes for 2020 yet.

[DavidD66]

For 2020, since you did the recharacterization prior to filing your 2020 tax return, and that fact that you incurred a loss, you don't have to do anything for 2020.  For 2021, you will receive a Form 1099-R for the conversion, you just need to report it by entering on your tax return.  You will also need to complete and file a Form 8606 and file with your 2021 tax return.

[Anonymous]

How do i complete and file Form 8606 with Turbotax online?

[DanaB27]

To verify, do you have Form 8606 on your 2020 tax return with the $4,000 basis on line 14 after you entered the recharacterization on your 2020 tax return?

If not then you will have to amend your 2020 tax return.

You will enter the recharacterization when you enter the 2020 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. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount of $4,000
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $4,000 (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 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 2021 tax return

To get Form 8606 created on your 2021 tax return you will need to enter your 2021 nondeductible contribution and your basis from 2020. Please follow the steps below.

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” since you had a nondeductible contributions before this tax year.
9. Enter your $4,000 basis in the Traditional IRA from line 14 of your 2020 Form 8606.
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 distribution/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 "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 ($4,000) and the value of all traditional, SEP, and SIMPLE IRAs

@Anonymous

[Anonymous]

Thank you for your response and detailed steps.

I am a little confused..

 DavidD66 previous response on Mar 4 2021, says the following

"For 2020, since you did the recharacterization prior to filing your 2020 tax return, and that fact that you incurred a loss, you don't have to do anything for 2020"

But your response says I should have done Form 8606 on your 2020 tax return with the $4,000 basis.

Can you please confirm that Form 8606 was needed in 2020, if thats really case it looks like i would have to amend the 2020 return

[DanaB27]

Yes, you will need to file Form 8606 on your 2020 tax return to report recharacterization and make the contribution nondeductible. Then you will have a basis on line 14 of your 2020 Form 8606 to carry to 2021. 

Yes, you will have to amend your 2020 tax return if you do not already have Form 8606 on your 2020 tax return. Otherwise, the IRS will ask questions if you report the $4,000 from 2020 on your 2021 tax return. And you want to enter the 2020 basis on your 2021 tax return to make your conversion nontaxable (only earnings would still be taxable).

@Anonymous

[Anonymous]

@DavidD66 How to I complete and file Form 8606 in turbo tax online

[Anonymous]

Looks like I can only paper file amended 2020 return. And it takes upto 16 weeks on IRS. Does that mean i have to hold off 2021 tax return until after IRS processed the amended 2020?

@DanaB27 

[DanaB27]

No, you can go ahead and file your 2021 tax return after you mailed your amended 2020 tax return.

@Anonymous
 

[Anonymous]

I am trying to amend 2020 return using Turbotax online.

Trying the following steps

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"

but Jump to IRA contributions is not showing up.

Is there another way to go to that section? @DanaB27 

[DoninGA]

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@Anonymous wrote:

I am trying to amend 2020 return using Turbotax online.

Trying the following steps

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"

but Jump to IRA contributions is not showing up.

Is there another way to go to that section? @DanaB27 

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To enter a IRA contribution -

• Click on Federal Taxes (Personal using Home and Business)
• Click on Deductions and Credits
• Click on I'll choose what I work on (if shown)
• Scroll down to Retirement and Investments
• On Traditional and Roth IRA Contributions, click the start or update button

[Anonymous]

Do I need to amend state tax too for 2020? @DanaB27 

[DanaB27]

It depends on your state, what is your state?

@Anonymous

[Anonymous]

sorry, should have mentioned that.

Its Georgia. @DanaB27 

[DanaB27]

No, you do not need to amend your Georgia return, Georgia takes the federal adjusted gross income to determine your state tax and this information did not change on your 2020 return.