Recharacterization of IRA contribution

[clm-sat]

On March 1st of 2019 and before I filed the 2018 return I mistakenly made a contribution to my Traditional IRA.  I intended to make the contribution to my Roth IRA.  I discovered the mistake on March 7 and re-characterized it as a Roth.  The actual amount that was re-characterized was $32 less than the original contribution due to a decrease in value.  My 2018 tax return was filed on March 10 with no deduction for an IRA contribution. I received from the Broker a 1099R reflecting a distribution for the original contribution less the $32 decrease in value with a code R in Box 7.  Turbo Tax tells me  I need to amend the 2018 return. My question is what do I change in the 2018 return? And as for my 2019 return should it include anything about the contribution since it was actually a 2018 contribution even though it shows up on a 2019 1099R?

[macuser_22]

A code R 1099-R does not actually do anything in TurboTax.  The recharacterizations is entered into the IRA contribution interview.   If you never entered the 2018 contribution into your 2018 tax return and there was no 2018 deduction or 8606 form with the contribution  on line 1, then there is really nothing to do because nothing was reported. 

Technically when properly entered in a 2018 tax return an explanation statement is all that is sent to the IRS, but it is not worth amending just to send an explanation.  The 1099-R sent to the IRS by the financial institution reports it to the IRS.

A Roth contribution is not reported in a tax return, however, if the Roth contribution would result in getting the 2018 savers credit you might want to amend to claim that credit.

Nothing about a 2018 contribution goes on your 2019 tax return.

Here is how to enter it:

A 2019 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2018 and recharactorized in 2019) will tell you that you must amend 2018.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2018 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2018 tax return.

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.

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  Traditional IRA  to a Roth - recharacterize".

The amount of the original  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 for a code R 1099-R.

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.