Recharacterization to correct 2020 contribution and 2021 back door Roth IRA

[KingTuk]

Need some help understanding what to enter in Turbo Tax and how. Thanks! See below for timeline of events.

2020 - made a Roth IRA contribution of $6,000

2021 - realized MAGI was too high prior to filing 2020 taxes

Jan 22, 2021 - recharacterized $7,154.66 to traditional IRA ($6,000 (initial contribution) + $1,154.66 (gains))

Jan 25, 2021 - backdoor Roth IRA $7,147.30 (lost some $)

Filed my 2020 taxes where I reported the $6,000 as nondeductible on Form 8606. Received form 5498 later in the year.

Jan 27, 2021 - I did a $6,000 backdoor Roth IRA contribution towards the 2021 tax year.

I then received a 1099-R for 2021 reporting $13,147.30 ($6,000 +  $7,147.30) as gross distribution and taxable amount with distribution code 2. 

What do I enter in TurboTax and how? Why is the amount for $13,147.30 and not $6,000? 

[DanaB27 · Accepted solution]

You got a Form 1099-R for $13,147.30  because that is how much you converted in 2021.

You stated you have Form 8606 when you entered the recharacterization on your 2020 return. You will need your basis from line 14 and enter this during the TurboTax interview (either steps 9 and 10 when you enter your 2021 contribution or steps 11 and 12 when you enter your 1099-R).

To enter the 2021 nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had nondeductible contributions before this tax year
10. Enter your $6,000 basis in the Traditional IRA from the 2020 recharacterization (line 14 of your 2020 Form 8606) 
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (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).

To enter the 1099-R distribution/conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?"
12. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[KingTuk]

Thank you @DanaB27. This was very helpful. Just confirming that the gains of $1,147 on the initial $6,000 contribution, which I later recharacterized is taxable?

[DaveF1006]

Yes, these earnings are taxable.

@KingTuk

[KingTuk]

Hello @DanaB27 @DaveF1006 ,

Should there be a value in line 8 on the 8606 form, which would automatically populate lines 9, 10, and 11? If so, it did not populate.

[RobertB4444]

@KingTuk  No, there should not be an amount on line 8.  You did not have a SEP or SIMPLE plan.