Recharacterized portion of Traditional IRA to Roth IRA for 2021 Tax Year. Why am I getting the "Explain Excess Withdrawal" prompt?

[armentdw]

I recharacterized a portion of my Traditional IRA to Roth IRA for the 2021 tax year.  This was done in April 2022 ahead of the tax filing deadline.

I received a 1099-R in my 2022 tax forms that includes the recharacterized amount in box 1 as a gross distribution.  Box 2a for taxable amount is $0 (I assume since I paid the tax on the 2021 return when the recharacterization was made).

Why am I getting the "Explain Excess Withdrawal" prompt?  How should I enter this explanation?  Turbo Tax suggests that Box 2a should not be $0 but that is what my 1099-R has.

[dmertz]

TurboTax response suggests that the code that you have selected for box 7 of TurboTax's 1099-R form does not indicate a recharacterization.

" Box 2a for taxable amount is $0 (I assume since I paid the tax on the 2021 return when the recharacterization was made)."

This statement makes no sense.  Recharacterizations are never taxable.

What is the code in box 7 of the 2022 Form 1099-R provided by the payer?

Is the IRA /SEP/SIMPLE box marked?

Did you do any Roth conversions and, if so, in what year?

[armentdw]

"This statement makes no sense.  Recharacterizations are never taxable."

In a way it was taxable.  Since I recharacterized to a Roth, the contribution was no longer tax deductible so I paid income tax on the amount that was recharacterized.

"What is the code in box 7 of the 2022 Form 1099-R provided by the payer?

Is the IRA /SEP/SIMPLE box marked?"

Box 7 is "R" and IRA/SEP/Simple is checked.

"Did you do any Roth conversions and, if so, in what year?"

No.  Just the recharacterization from traditional to roth in 2021.

[dmertz]

"Since I recharacterized to a Roth, the contribution was no longer tax deductible so I paid income tax on the amount that was recharacterized."

The contribution was never deductible to begin with, so you aren't paying any more tax.

A code-R Form 1099-R must always have $0 in box 2a and, when entered, TurboTax will never complain about that.

The message that you received suggests that $0 was entered in box 2a of a Form 1099-R that has code 1, 2 or 7 in box 7 with the IRA/SEP/SIMPLE box marked.  The only time you are permitted to enter $0 on TurboTax's form in place of the amount reported in box 2a of such a Form 1099-R provided by the payer is if the distribution is nontaxable because it is a return of excess contribution after the due date of the tax return for the year for which the contribution was made, which requires explanation to the IRS.

[armentdw]

@dmertz 

Here's a screenshot of the form I received form Vanguard.  It has 
2a  - $0
7  - R
IRA/SEP/Simple checked

[HopeS]

You should have reported the nondeductible traditional IRA contribution for 2021 on the 2021 tax return. TurboTax should have created the 2021 Form 8606 with the basis on line 14 to enter into the 2022 tax return. 

In addition to Dmertz guidance, please follow these steps outlined by DanaB27 if you need additional guidance  to enter 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” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution non-deductible” 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 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?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@armentdw 

[dmertz]

Perhaps this is just a case of TurboTax displaying the wrong message and it should instead be saying "Explain the recharacterization."