Roth IRA - 2020 contribution recharacterized and converted in 2021 + backdoor, 1099-R received in 2022

[lxl]

In 2020, I contributed $6000 to my Roth IRA. In January 2021, I realized my income precluded me from making that contribution to my Roth IRA in 2020, so I recharacterized the $6000 contribution as a contribution to a new Traditional IRA (let's call it tIRA-2020). I reported the $6000 Roth IRA contribution as a recharacterized tIRA-2020 contribution in my 2020 return, and explained the recharacterization as required.

In 2021, I converted tIRA-2020 to my Roth IRA (backdoor #1). Also in 2021, I contributed $6000 to a new Traditional IRA (tIRA-2021). A week later, I converted tIRA-2021 to my Roth IRA (backdoor #2).

It is now 2022 and I've received three form 1099-R:

1099-R #1: Roth IRA distribution for recharacterization ($6000+earnings)

1099-R #2: tIRA-2020 distribution for backdoor ($6000+earnings)

1099-R #3: tIRA-2021 distribution for backdoor ($6000)

I'm planning to report 1099-R #1 on my 2020 tax return and filing amended.

I'm planning to report 1099-R #2 on my 2021 tax return.

I'm planning to report 1099-R #3 on my 2021 tax return.

Is this plan correct? Anything I should check on or pay special attention to? Any gotchas?

Thanks

[DanaB27]

You stated that you reported the recharacterization on your 2020 therefore you can ignore the 1099-R with code R because a 1099-R with code R will do nothing to your return. But you want to check if you had filed Form 8606 with your 2020 tax return and the traditional IRA contributions were made nondeductible (if you had a retirement plan at work and were over the income limit TurboTax made it nondeductible automatically).

Yes, you will enter the other two 1099-Rs for the conversion on your 2021 return.

But first, enter the 2021 nondeductible traditional IRA contribution:

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 “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had a nondeductible contributions before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount.
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

To enter the 1099-R distribution/conversion: 

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contributions to your IRA?" since you had any nondeductible contributions in prior years.
8. Answer the questions about the basis and value

[kren1011]

Hi @DanaB27, I have a similar situation.

1. In 2021 I accidentally contributed $6000 directly to my Roth IRA.
2. I recharacterized it to a traditional IRA with a gain of $50 (total $6050).
3. I did a backdoor Roth transaction and moved $6000 (out of the $6050) from my traditional IRA to my Roth IRA 
4. I got 2 1099-Rs, one with a distribution code of N for the recharacterization, another for the backdoor Roth

I have two questions:

1. Do I need to count the recharacterization as an additional IRA contribution? In addition to the backdoor roth - so both traditional and Roth IRA contributions?
2. if I do need to count both, does the traditional recharacterization need to be for $6050 (inclusive of the gain)?

Thank you!

[DanaB27]

No, you will only enter the Roth contribution and then select that you recharacterized the contribution.

Please follow these steps to enter the contribution to the Roth IRA and the recharacterization to traditional IRA:

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 “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount of $6,000
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $6,000 plus $50 earnings were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since you are doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

To enter the 1099-R distribution/conversion: 

1. Click on "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis and value

@ kren1011

[rbmo]

Best answer, thank you @DanaB27