Recharacterization from Roth to IRA

[Damocles]

Hello. In the process of recharacterization, when transferring Securities from Roth to IRA how should I choose which ones to transfer?  Are there taxable catches if I transfer Securities that have gained in value?  Should I transfer securities I am experiencing losses? Thank you.

[macuser_22 · Accepted solution]

A recharactorization is treating a new contribution to a Roth as actually a contribution to a Traditional IRA instead.    Did you make a 2019 new contribution to a Roth IRA?     The time limit to do a 2019 recharacterization expires tomorrow (July 15) unless an extension is filed before July 15.   It is probably already too late for a financial institution to preform and post by July 15 (most take 2-3 business days).

The financial institution must also calculate any earnings on the contribution and transfer that also.  Gain (or loss) is calculated on the entire Roth and pro-rated for the value of the amount transferred.

For example, if the 2019 Roth contribution was $5,000 then exactally $5,000 must be transferred plus any gain or minus any loss.

[Damocles]

Thank you. This was super helpful.

So I was $6,000 in excess contribution. They transferred into my Traditional IRA that amount plus roughly $900 in proceeds.  So I should enter the full amount in my tax form not just the $6,000. Correct?

Thank you again.

[macuser_22]

You will receive a 1099-R next year with a code R in box 7 that you can ignore if reported now.

The proper way to report the recharacterization and earnings which is to enter the 2018 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2018 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

[telser]

So if I recharacterize my 7,000 contribution from my roth over to my traditional IRA and it moves along with 1,000 in gains, where do I enter the gains? In the Tubotax explanation box that says "The Amount Transferred (Recharacterization plus earnings or losses):?

When I do that, the amount of taxes I owe does not change even though between my wife and I, there was a 2,200 gain in the roth on our 14,000 contributions. Shoudn't that go up?

Also, where does the gain get entered on the 8606? 

I thought I was being a good boy by making my 2019 roth contribution in January of 2019 but then ended up workin over 800 hours of overtime and busted throgh the eligibility limit for a roth.

Thank you very much.