Roth IRA recharacterization to traditional IRA

[fdj]

I started a new Roth IRA in January 2020 and made regular contributions 2x a month throughout 2020 for a total of $6000 dollars. I realized in February of 2021 that my AGI was too high. I then immediately Recharacterized my Roth IRA to a Traditional IRA. I later rolled the same funds back into my Roth IRA in February. I had $1301.08 in earnings or $7301.08 total that I initially recharacterized from the Roth IRA to the traditional IRA. How do I use the software to report my recharacterization and "earnings" correctly?

[macuser_22]

You should have received a 2020 1099-R with a code N in box 7 to report that.

A 2020 1099-R with a code N in box 7 (Recharacterized IRA contribution made for 2020 and recharactorized in 2020).

A code N 1099-R does nothing whatsoever if entered into the 1099-R section. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2020 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2020 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code N 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2020 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.