Recharacterization and conversion back to Roth IRA with gains/losses for year 2022/2023

[SaifTax]

In 2023 before April 14th 2023, I have recharacterized 2022 Roth IRA contribution and did the same for 2023 contribution. Realized that the income was high for contribution hence I was recommended to Recharacterize (Roth IRA to Traditional IRA) and then conversion to Roth IRA

For 2022, 5770.09 (on $6000 contribution) was recharacterized to Traditional IRA.
For 2023, $6909.17 (on $6500 contribution) was recharacterized to Traditional IRA.

This was later converted to Roth IRA. The original contribution was taxed already. 

Do I have to amend 2022 for Recharacterization of $5770.09?
Does the $409 gains (from 2023) is excess amount contributed that should be withdrawn? 
How do I correctly file this return correctly?

[DanaB27 · Accepted solution]

It depends if you entered the recharacterization in the IRA contribution section on your 2022 return with the steps below. If you did not enter it then please see How do I amend my federal tax return for a prior year?

You will enter the recharacterization when you enter the 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 ‘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 are thinking about doing a backdoor Roth. Otherwise select "No". (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)

You will get a 2023 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2022 and this belongs on the 2022 return. But 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. 

You use the same steps on your 2023 return for the recharacterization of your IRA contribution for 2023.

No, the gains do not need to be withdrawn, they are not an excess contribution. Please make sure you only enter the contribution amount as moved/recharacterized (step 8 above).

[SaifTax]

Thanks.

How should the Form 8606 looks like for my case? 

[DanaB27 · Accepted solution]

On line 1 you will have $6,500 for line 1 (from the nondeductible contribution for 2023) and $6,000 on line 2 (from the nondeductible contribution for 2022). Lines 3 and 5 should be $12,500.

TurboTax might use the Taxable IRA Distribution Worksheet to calculate line 13 and line 18 (indicated by the *).