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Level 5

Reporting of 2017 traditional ira recharacterized and 2015, 2016 traditional iras converted to ROTH in Feb 2018

Here are the details 

2015 - 1000 in traditional IRA deposited in 2016 before April; (2015 contribution)

2016 - 1000 in traditional IRA deposited in 2017 before April (2016 contribution)

2017 - 1000 in traditional IRA deposited in 2017 (February 2017)

February 2018 - recharacterized 2017 traditional IRA to Roth and at the same time converted 2015, 2016 Traditional IRAs to Roth IRA.

When 2017 return was filed, reported recharacterization for changing my mind.  Now I have 2 lines on 1099 R one showing distribution code of R and another showing Distribution code of 2.  TT calculates taxes on the conversion amount as expected.  There are earnings on IRA recharacterized to Roth but taxable amount on Recharacterized is 0.  Are earnings upon recharacterization taxed?  I don't think so and it does not look like TT taxed the earnings.

TT says I may have to amend my 2017 return.  I do not think I have to.  Am I correct?

Though I have one 1099-R, I reported as two 1099-R's in TT.

Is my reporting correct?

1 Best answer

Accepted Solutions
Level 12

Reporting of 2017 traditional ira recharacterized and 2015, 2016 traditional iras converted to ROTH in Feb 2018

You might have to amend the 2017 returns.  It depends on what you originally reported.  When you recharacterize a contribution, you are treating the original contribution as if it never happened.  If you recognized this and did not take a $1000 deduction for your original 2017 IRA contribution, you do not need to amend the 2017 return, because you were already considering the original contribution to be a Roth contribution, and not a TIRA contribution.  

You are correct about the growth.  Since the recharacterization changes the nature of the original contribution to a Roth, your growth is also considered retroactively to be Roth IRA growth.  Growth on a Roth IRA is tax-free unless you prematurely distribute the growth.  

If you did report the $1000 deduction on your 2017 return, then you would amend the return because the recharacterization disallows the $1000 deduction.  

As far as the reporting is concerned, that sounds correct.  Your plan administrator may have reported both transactions on one form (Vanguard does this), but with two different box 7 codes you do want to report them as if they are separate 1099-Rs.  In essence they are, because they are two different types of transactions.

5 Replies
Level 12

Reporting of 2017 traditional ira recharacterized and 2015, 2016 traditional iras converted to ROTH in Feb 2018

You might have to amend the 2017 returns.  It depends on what you originally reported.  When you recharacterize a contribution, you are treating the original contribution as if it never happened.  If you recognized this and did not take a $1000 deduction for your original 2017 IRA contribution, you do not need to amend the 2017 return, because you were already considering the original contribution to be a Roth contribution, and not a TIRA contribution.  

You are correct about the growth.  Since the recharacterization changes the nature of the original contribution to a Roth, your growth is also considered retroactively to be Roth IRA growth.  Growth on a Roth IRA is tax-free unless you prematurely distribute the growth.  

If you did report the $1000 deduction on your 2017 return, then you would amend the return because the recharacterization disallows the $1000 deduction.  

As far as the reporting is concerned, that sounds correct.  Your plan administrator may have reported both transactions on one form (Vanguard does this), but with two different box 7 codes you do want to report them as if they are separate 1099-Rs.  In essence they are, because they are two different types of transactions.

Level 5

Reporting of 2017 traditional ira recharacterized and 2015, 2016 traditional iras converted to ROTH in Feb 2018

Thank you!  No deduction was taken for the $1000 IRA.  It was reported as traditional ira that was recharacterized to Roth with an explanation "Changed my mind".  Does the basis in Roth IRA for teh conversions include the earnings?  I shall be paying tax on the conversions (including earnings)
Level 12

Reporting of 2017 traditional ira recharacterized and 2015, 2016 traditional iras converted to ROTH in Feb 2018

You don't include any of the Roth amounts as part of the conversion.  That amount is considered a Roth contribution effective 2017.  The original contribution has a basis of $1000; the growth on that amount does not increase the basis.  The conversion of the other IRA amounts in 2018 add to the $1000 basis.  Those amounts do include the growth, because the growth  is taxable at the time of the conversion.
Level 5

Reporting of 2017 traditional ira recharacterized and 2015, 2016 traditional iras converted to ROTH in Feb 2018

Got it.  Thank you very much
Level 12

Reporting of 2017 traditional ira recharacterized and 2015, 2016 traditional iras converted to ROTH in Feb 2018

You are welcome.