Recharacterize IRA to Roth IRA - Reporting Earnings

[glashfordjr]

I had a recharacterization of $1086.97 from a ira to a roth ira.  The rechacterization was made on 3/4/2024 for an IRA contribution of $1040  made on 12/13/2023.  The earnings would be $46.97.  All the information was on a 2024 1099-R.  Entered into Turbotax 2024 and got the following messages: (1) "It looks like you may need to amend your 2023 return." (2) "Here's why: Your 1099-R reports earnings on a contribution you made in 2023.  This information needs to go on your 2023 return."  and (3) "If you've already filed your 2023 return, then you'll need to amend it.  Here's How".  I click on the "Here's how" link and get "not found", so no help.

First question is why do I have to file an amended 2023 return.  If I had put the $1040 in the roth ira to begin with, the earnings would have been non-taxable.  Also the majority of the earnings would have been in 2024.

Second question is where on a 2023 amended return, do I report the $46.97 earnings.  Do the earnings have to be prorated between 2023 and 2024?  If so, where are the 2024 prorated earnings reported on the 2024 tax return (have not filed yet).

I will have a similar situation in 2024.  I am going to recharacterize about $1200 for contributions made in 2024.  The recharacterization will be about $1260 ($1200 contributions plus estimated $60 earnings).  Do the $60 earnings have to be reported and if so on which form and where?

Thanks for any help.

[DanaB27]

The earnings for a recharacterization aren't taxable income but the recharacterization should have been reported on your 2023 return with the steps below.

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 “Traditional IRA”
5. Answer ‘Yes” on the “Traditional IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Traditional To a Roth 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.

TurboTax will include the explanation statement with your return. Please see How do I amend my federal tax return for a prior year?

You will use the same steps on your 2024 return to report the recharacterization you made in 2024.

Note,  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. 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.

[dmertz · Accepted solution]

TurboTax is simply reminding you that your 2023 Tax return should reflect a $1,040 Roth IRA contribution, meaning that your 2023 tax return should not show the $1,040 as either a deductible or nondeductible traditional IRA contribution.  Your 2023 tax return should also have included an explanation of the recharacterization.  If your 2023 tax return already reflects that, your can ignore the code R Form 1099-R, TurboTax is already ignoring it other than to issue the reminder.

The $46.97 simply becomes earnings in your Roth IRA.

Similarly to what you should have done on your 2023 tax return, enter the traditional IRA contribution made for 2024, then indicate that you "switched" $1,200 of your contribution to be a Roth IRA contribution and enter the explanation indicating that you recharacterized $1,200 and that the transfer included $60 of attributable earnings for a total transfer of $1,260.  You can then ignore the code-R 2025 Form 1099-R that you receive next January.

[glashfordjr]

Many thanks to dmertz and DanaB27 for the detailed information.

I will file an amended return for the 2023 contribution.

For the 2024 contributions that I will rechacterize before the 2025 IRS due date, can I enter this information on my 2024 return even though I won't receive the 1099-R until January, 2025?

Thanks in advance.

[dmertz]

No need to enter any Form 1099-R for a recharacterization.  TurboTax does nothing with it.