Recharacterize Tax for 2025 and 2026 in 3/2026 into Rollover IRA with Pretax Money - Can I do Backdoor Roth Conversion without pro-rata rule?

[user17727448620]

Recharacterize Tax for 2025 and 2026 in 3/2026 into Rollover IRA with Pretax Money 

Currently Rollover IRA pretax money of $852.90 is currently being rolled over to 403b plan once it processes.

The recharacterization money 2025 contributed 7k and recharacterization money 2026 of 7k will be going into my rollover IRA account. (I lost money from the contribution)

All 3 transactions are currently in process at this time.

If there is pretax and aftertax money in the same IRA account at the same time is that a problem if I the pretax money is being moved out once it processes and I have saved the current pretax balance statement letter.

Would I be able to do Backdoor Roth Conversion with the pro-rata rule not applying since there is $0 on PRETAX money in all my IRA accounts by this month 3/2026. 

Would my after tax money (14k - probably less since I lost money) in my Rollover IRA account be taxed again ($0 pretax in all IRA accounts by 3/2026) when I do the Backdoor Roth Conversion?

[baldietax]

Roth conversions are taxed in the calendar year they apply so that part of what you are doing will be in your 2026 taxes and it will ask for the balance of your IRAs as of 12/31/26.  You can do all these things simultaneously, what matters is the IRA balance gets to zero at year-end through the reverse rollover of the pre-tax money and the conversion of the rest, then you won't be taxed thru the pro rata rule on the conversion (unless you have some earnings in the IRA included in the conversion, e.g. due to delays between contribution and conversion if the cash is sitting in a MM fund etc).

For 2025 it sounds like you have a Roth contribution you had to re-characterize to Trad IRA?  For 2025 you would enter that into Turbotax as a Roth contribution and answer the re-characterization questions and that will end up as a basis carryover on Form 8606 to 2026 assuming you elect the contribution to be non-deductible.  You will get a 1099-R with code R next year but it won't have any effect on your taxes as you would have already entered it as a contribution/re-characterization for 2025 taxes.

You mentioned losses - if the net amount re-characterized is less than the original contribution your basis in the IRA could end up higher than the market value you are converting.  If this happens I think you will have some basis "stuck" in the IRA.  This could be applied against any future earnings in the Trad IRA to make that non-taxable in a distribution/conversion, or if you didn't complete the reverse rollover to the 403b then yet consider that the $852.90 could be applied to that basis in a Roth conversion.

You are never taxed "again" on non-deductible contributions to a Trad IRA when you make distributions or conversions, it's just a question of timing - even when you have a mixture of after and pre tax contributions then the Roth conversion is considered taken from both buckets in a pro-rata manner and the pre-tax portion is taxed that year, and the remainder of the after-tax money will be carried over as basis in the IRA for future years and this process continues until the account balance is emptied out to zero.

Not a CPA but that's my understanding based on what you've described.  More links/info on recharacterizations and backdoor Roth process in Turbotax:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-income/recharacterize-roth-ir...

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/difference-conversio...

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...

[user17727448620]

I was able to call Schwab, and they are sending me a 1099-R with Code R (box 7). I would have to wait for it (3/25/26) and report it in my 2025 tax year documents. 

How would I report this in TurboTax?

1. Do I report that I contributed $7k to a Roth IRA, then recharacterize it to $7k in a rollover IRA, and report the loss of $92.32 and the original amount of $7,000 in an explanation statement? 

Recharacterization amount for Roth IRA to Rollover IRA for 2025 = $6,907.68    (Ineligible for Roth contributions) 

2. How would I know that the Recharacterization $7k is counted as a non-deductible basis in the 2025 tax form, so I can convert all my money from a traditional IRA into a Roth IRA for a backdoor Roth conversion in 2026 without being taxed again? What line and amount would it be on Form 8606?

In an explanation statement, what I write: 

2025 Recharacterization Amount $6907.68, Loss of $92.32 

Please correct me if I'm wrong

@MonikaK1 @ReneV4 

[user17727448620]

I will receive a 1099-R with Code R for the 2025 Recharacterization on 3/25/26

How do I report it on TurboTax?

1. Do I report the 1099-R for the recharacterization? Do I report that I contributed $7,000 to a Roth IRA and recharacterize it as a Rollover IRA? I lost money, and the amount for 2025 = $6,907.68. How do I write the explanation statement?

Would I write: 2025 Recharacterization amount = $6,907.68, 2025 Loss = $92.32

How do I see that it is a non-deductible contribution for 2025? What line and amount would it be on Form 8606?   I would do the same steps for the 2026 Tax Year, too. 

2. I plan to do a Backdoor Roth IRA conversion for all the money I have in Rollover IRA (all after-tax money contributions, non-deductible from 2025 and 2026 recharacterization) = $13,707.65

Pretax funds from the original rollover IRA account have been successfully transferred to my retirement 403b plan before my after-tax funds are added to the Rollover IRA account.  The pro-rata rule would not apply to me for 2025 and 2026; is that correct?

How do I make sure I am not being taxed on these after-tax non-deductible contributions? What amount/line on Form 8606?

Would my basis (total after-tax contributions) be $14,000?

I would have $292.35 in excess, so if I gain money from my Rollover IRA account through future year contributions, it would not be taxed until I meet the $292.35 threshold?

[CatinaT1 · Accepted solution]

When you get your 1099-R, here is how to report it:

1. Go to Deductions & Credits > Traditional and Roth IRA Contributions.
2. Select that you contributed $7,000 to a Roth IRA.
3. The software will ask if you changed your mind and recharacterized it. Say Yes.
4. Enter the amount you contributed ($7,000) and the amount that was actually transferred ($6,907.68).
5. For your Explanation Statement: you can write: "Original 2025 Roth IRA contribution of $7,000 was recharacterized to a Traditional IRA on xx/xx/2026. The transfer included a loss of $92.32, making the total amount transferred $6,907.68."

Because you recharacterized the Roth contribution, the IRS now views it as if you made a $7,000 nondeductible contribution to a Traditional IRA on day one. Your basis is based on the cash you put in, not the diminished value. On your 2025 Form 8606, look at Line 1. It should show $7,000. Look at Line 14. It should also show $7,000. This is your total basis carrying forward.

The actual conversion step (moving the money from the Traditional IRA back to the Roth) happened in 2026, so you will report that on your 2026 tax return next year. Your pre-tax IRA balance will be $0 on December 31, 2026, so the pro-rata rule does not apply to you. You successfully isolated your after-tax money.

When you file your 2026 taxes, your Form 8606 will pull everything together to protect you from being taxed:

1. Line 2 will pull in your $7,000 basis from 2025.
2. Line 1 will show your new $7,000 nondeductible contribution for 2026.
3. Line 3 (Total Basis) will be $14,000.

You have a total tax-free basis of $14,000, but you only converted $13,707.65. That leftover $292.35 of unrecovered basis does not disappear. It will remain on your 2026 Form 8606 on Line 14.

It carries forward indefinitely. If you make future nondeductible contributions and the market is up, that $292.35 acts as a tax-free shield against future gains.

[user17727448620]

I will be getting the 1099-R statements for all transactions in 2027.

I may possibly get the Form 5498 on May 31 for these 3 transactions (Rollover to 403b, 2025 recharacterization, 2026 recharacterization). 

I will also have the statement balance and transfer activity for March soon. 

For the recharacterization, I transferred shares and cash. Do I include the same explanation statement and put the number of shares?

Original 2025 Roth IRA contribution of $7,000 was recharacterized to a Traditional IRA on 03/11/2026. The transfer included a loss of $92.32 (109.573 shares XX, 5000 shares XX, and 1 cent cash), making the total amount transferred $6,907.68