What date does TurboTax mean by "What year is on your...1099-R?" Is it asking for the year of the recharacterization/distribution rather than the tax year of the form?

[MrLeon]

The only date on my forms is "2020 Form 1099-R" but if I use that date, TurboTax seems to think the recharacterization impacts 2019 taxes due to distribution code "R" for a recharacterization that settled in 2021. It seems TurboTax is really asking for the year of the distribution.

[dmertz · Accepted solution]

TurboTax is asking for the year of the form 2020, which would be the same as the year in which the recharacterization was performed (the year that the recharacterization distribution was made from the original account, not the year in which the recharacterization was deposited into the receiving account).  A Form 1099-R received recently would normally be a 2020 Form 1099-R and would be reporting a recharacterization that was performed in 2020.

In your case the payer is indicating with code R on a 2020 Form 1099-R that you did a recharacterization in 2020 of a contribution made for 2019.  If your 2019 tax return does not already reflect the effect of this recharacterization, you must amend your 2019 tax return.

[MrLeon]

Thanks for taking a look. The payer (Vanguard) confirmed that the characterization was of 2020 contributions as directed. In this case, the trade date was 2020 but settlement was 2021. Both accounts are with the same broker and so settlement was the same both sides.  They've said the 1099-R reflects code "R" because settlement occurred in the calendar year after and that I should contact TurboTax if the software is saying I need to amend 2019.

Based on your explanation @dmertz  but assuming he recharacterization was in fact for 2020 contributions, traded in 2020 and settled 2021 is your expectation that I would have received a 2021 Form 1099-R with the "R" (prior year) type code to file with my 2020 taxes?

I'm still I'm trying to discern whether:

1. The 1099-R was filed/coded wrong by the broker (either coded wrong or should have been a 2021 form) despite their explanation.
2. The question is poorly worded in TurboTax and I should be selecting year "2021" there.

[dmertz · Accepted solution]

If this was a recharacterization of a contribution made for 2020, the Form 1099-R should either be a code N 2020 Form 1099-R or a code R 2021 Form 1099-R depending on the timing.  Since it appears to be neither of these, contact Vanguard to obtain a corrected Form 1099-R.

[MrLeon]

Makes sense to me as well. Thanks

[dmertz]

The circumstances suggest that Vanguard's system is not capable of correctly handling the situation where the recharacterization is initiated at the end of the year but not completed until the next.  If the recharacterization distribution occurred on December 31, 2020 but the recharacterization contribution did not occur until January 2, 2021, the recharacterization distribution should be reported on a code N 2020 Form 1099-R even though the recharacterization contribution is reported on a 2021 Form 5498.  This is referred to as an outstanding recharacterization.

[las61]

So how does would the 2019 return be properly amended?  Do you enter the 1099-R received in 2020 into the 2019 return?  Is a Form 8606 required?

I made a Roth IRA contribution in mid-2019.  In February of 2020, I realized my income was over the limit for a Roth and recharacterized the 2019 contribution and earnings to enable me to do a backdoor Roth.  Turbotax is telling me I MAY need to amend my 2019 return.  Since the Recharacterization occurred in 2020, I thought the taxes on the earnings would be paid on the 2020 return.  Please advise.

[dmertz]

You need to amend your 2019 tax return if it does not already reflect the result of the recharacterization of the contribution made for 2019, that result being a traditional IRA contribution for 2019.  If the 2019 already shows the recharacterized contribution as being a traditional IRA contribution, either deductible on 2019 Schedule 1 line 19 or nondeductible on 2019 Form 8606, there is no need to amend.

Taxes on earnings are only paid gains attributable a returned contribution, not on gains attributable to a recharacterized contribution.