Recharacterization to a traditional & back to Roth

[HLFERNANDES]

In 2023 while doing 2022 taxes I realized I was over the income limit in the Roth IRA. I took out the money in March [before tax deadline] My financial advisor suggested I recharacterize the access into my traditional as a non-deductible contribution. In 2024 he put it back to my Roth but listed it as a normal distribution on the 1099R & I'm realizing I have to pay taxes again. 

I did find out I need to amend the 2023 taxes to show the recharacterization but having issues with the financial institution changing the 1099. What should be in box 7 of the 1099R to avoid taxing after-tax money? 

[DanaB27]

To clarify, for the 2022 excess you requested the withdrawal of excess contribution  plus earnings and you reported the earnings on your 2022 return. You should have gotten a 2023 Form 1099-R with codes P and J.

And in 2023 you made a Roth IRA contribution that you recharacterized as Traditional IRA contribution in 2023 and then converted it to the Roth IRA in 2024?

You will enter the recharacterization when you enter the contribution to the Roth IRA for 2023 on your 2023 return:

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)

Please see What are IRA conversions and recharacterizations? for additional information.

[HLFERNANDES]

Thanks for all the responses.

The recharacterization in 2023 was for a contribution in 2022, not for a contribution in 2023. I realized the overage in Feb 2023 while doing the 2022 taxes.

For the 2022 return TurboTax just asked if the overage [$6228] was taken out prior to the deadline of 4/15/2023 and I had, so I did nothing else.

I did get a 1099R in 2023 with code R and a 5498 was sent to IRS from the financial institution, showing the recharacterization of the $6228.

.

Then in March 2024 the amount was withdrawn from the traditional [rec'd no earnings] to put back into the Roth. A 1099R was sent in 2024 adding the withdrawn amount to my RMD and listed it as a normal distribution. Thus while doing my 2024 taxes, I'm being taxed on the entire $6228. 

Should I be amending the 2022 or the 2023 return; or both?

[DanaB27 · Accepted solution]

If you didn't report the recharacterization on your 2022 return or show the contribution to the Traditional IRA then you will need to amend your 2022 return. Please see How do I amend my federal tax return for a prior year? You should have a 2022 Form 8606 with the basis on line 14 since the Traditional IRA contribution was nondeductible. If the 2022 Form 8606 was you last filed Form 8606 then you will need to enter this basis into your 2024 return when TurboTax asks about your basis from prior years.

To confirm you didn't make any nondeductible Traditional IRA contributions for 2023 or took distributions from the Traditional IRA in 2023? If not then you do not need to need to amend your 2023 return.