Recharacterization 2021 Roth IRA Contribution to Traditional IRA: Contribution Amount or Net Amount?

[Redbird70]

I contributed to a Roth IRA in 2021 not knowing there was an income limits and had to do a recharacterization after Tax Forms sent by financial institutions. I want to make sure we are filling out the Step-By-Step boxes correctly.

I contributed $6,000 to Roth IRA. According to financial instituitions, I had a loss of $354.75 on the contributions. So $5645.25 was transferred to Traditional IRA.

1. Repayment of a retirement distribution Traditional: No.

2. Traditional IRA Contribution $0 ; $0 between January 1st, 2022 - April 18, 2022

3. Recharacterized Contribution Traditional to Roth IRA: No.

4. Excess IRA Contributions Before 2021: No.

5. Nondeductible Contributions to Traditional IRA Before 2021: No.

6. Repayment of a retirement distribution Roth: No.

7. Roth IRA Contribution $6000

8. Recharacterized Contribution Roth to Traditional IRA: $6000 or $5645.25 (with losses)

9.a. Date of the Original Contribution: 4/7/2021, 5/12/2021, 9/25/2021

9.b. Date of the Recharacterization: 2/22/2022 & 2/24/2022 

9.c. The Amount Recharacterized: $6000.

9.d. The Amount Transferred (Recharacterization plus earnings or losses): $5645.25

9.e. Reason for the Recharacterization: Not eligible for Roth IRA

Please help me on what goes in "step 8" for the recharacterization amount. The gains and losses aspect confuses me on if I enter that value ($5645.25) OR the contribution amount ($6000).

I think it is the $6000 as the other amount results in a penality, but I am not a tax expert.

Thank you!

[DanaB27 · Accepted solution]

You will enter $6,000 as recharacterized in your step 8.

Please review these instructions below for additional information:

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 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx minus $xxx.xx loss were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a screen saying $0 is deductible)

You will get Form 1099-R for the recharacterization with code R-Recharacterized IRA contribution made for 2021 and this belongs on the 2021 return. But a 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the 1099-R with code R when you get it in 2023. 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.

[Lea R]

I did a 2020 Roth IRA recharacterization the end of Apr 2021.  Texas' filing date was extended until May. This was the first time recharacterizing. I didn't know the earning amounts or that I should be expecting a 1099-R, so I entered my normal contribution as a Traditional IRA, instead of keeping it as Roth IRA Contributions recharacterized. Turbo Tax did create a Form 8606 Nondeductible IRAs which was submitted when filed. I had to pay in last year. 

This year, I received a 1099-R (2021) after entering the information, it indicated I should file a 2020 amendment to report these earnings. 

I initiated the 2020 amendment, and as you mentioned on the previous post, the dollar amount remained at "0". Do I still mail in the amendment or just report it on my 2021 forms? 

[DanaB27]

No, you do not need to enter Form 1099-R with code R. on the 2020 or 2021 return. A Form 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the Form 1099-R with code R and do not need to amend your return.

@Lea R

[Lea R]

So, I understand - when you indicate "You can only report it as mentioned above."

1. Which year do I "report it"? on my 2020 or 2021 return

2. If I "report it" on my 2020 return, doesn't this mean I need to amend it?

     a. I only entered contributions ($6500) without any earnings, and I entered it going to a Traditional IRA

     b. I didn't enter it as a Roth IRA contribution recharacterized as the steps indicated in your previous response. 

3. If I "report it" on my 2021 return, do I then ignore the comment about amending 2020 return?

[DanaB27]

A recharacterization of a contribution for 2020 will be reported on the 2020 return.

Since you entered it already as a traditional IRA contribution the only thing that will change on your return is adding an explanation statement for the IRS. If you don't amend your 2020 return you can provide an explanation to the IRS if the IRS ever asks for it.  

@Lea R