Roth IRA Recharacterization, IRA Back Door Conversion Reporting

[NDKD]

Good Evening All,

I made a mistake in January 2022 and contributed to my Roth IRA which should have been a non deductible contribution to my regular IRA, due to income thresholds. I did not realize the error until March of 2023 (when I was preparing my 2023 taxes). I initiated a recharacterzation of the Roth IRA contribution (there was a loss) to a regular IRA. Once the characterization was finalized, I immediatly initiated a conversion of the (new) regular IRA funds to a Roth IRA (both the recharaterzation and conversion occurred in March of 2023).

I received two 1099-Rs, the first for the roth recharacterization to a regular IRA showing the gross distribution and coded ‘R’ in box 7. A second 1099-R for the (new) regular IRA conversion to a Roth IRA showing the gross distribution (box 1) and the taxable amount (box 2a.). Box 1 and box 2a. show the same number. Box 2b. notes both boxes are checked. Additionally, box 7 (distribution code) shows ‘2’ with the IRA/SEP/SIMPLE noted ‘X’. All of the above I understand and highly confident the 1099-Rs are correct.

 Here's the problem I am struggling with. I have not contributed any more funds in 2023 to any IRA and dont plan to. Now, how do I deal with both 1099-Rs. I have read other posts and the different situations folks have gotten themselves in but can’t figure out what to do in mine. I have entered the conversion recharacterized contributions under the 'Deductions & Credits' section 'Retirement and Investments' as 2023 contributions. Under ‘Wages & Income’ section ‘Retirement Plans & Social Security’, I entered in only one of the 1099-Rs, the 1099-R relating to the newly established recharacterzation IRA in which the ‘2023 Form 5498 IRA Contribution Information’ shows the ‘Recharacterized contributions’. The second 1099-R is sitting here on the table and shows the ‘Roth IRA conversion amount’. Do I enter the second 1099-R into the ‘Wages & Income’ section ‘Retirement Plans & Social Security’? If I do, it shows on 1040 line 4a. double the amount of ‘IRA Distributions’.

[DanaB27]

You should have entered the recharacterization on your 2022 return in IRA section under Deduction and Credit and you can ignore Form 1099-R code R because a 1099-R with code R will do nothing to your return. You can only report the recharacterization in the IRA section under Deductions and Credits (on your 2022 return since it was a contribution for 2022). If entered correctly you should have a 2022 Form 8606 with the basis on line 14 and this will be entered on your 2023 return when you enter the second Form 1099-R for the conversion.

On your 2022 return you should have entered these steps:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Answer ‘Yes” on the “Roth IRA Contribution” screen
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
8. 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.
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 automatically and you only get a warning and then a screen saying $0 is deductible)

On your 2023 return to enter the Form 1099-R for the 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 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs