Roth Recharacterization and Traditional IRA Conversion

[ibbietax]

I contributed $6000 to my Roth IRA in January, 2019. 

I then recharacterized $6086 to a new traditional IRA in June, 2020.

I then converted $6086 back to my Roth IRA in June 2020.

How do I answer each question in trubo tax for this under deductions and credits?

For example, the first question is "Did you contribute to a Traditional IRA?" (I didn't contribute, I recharacterized)

Then, a later question is "Did you make a Roth IRA contribution? (I did originally, but I then recharacterized it"

It's very confusing to me and I need step by step help :(

Thank you in advance!

[macuser_22]

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@ibbietax wrote:

I contributed $6000 to my Roth IRA in January, 2019. 

I then recharacterized $6086 to a new traditional IRA in June, 2020.

I then converted $6086 back to my Roth IRA in June 2020.

How do I answer each question in trubo tax for this under deductions and credits?

For example, the first question is "Did you contribute to a Traditional IRA?" (I didn't contribute, I recharacterized)

Then, a later question is "Did you make a Roth IRA contribution? (I did originally, but I then recharacterized it"

It's very confusing to me and I need step by step help :(

Thank you in advance!

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Was the $6,000 contribution a 2019 contribution or was it a 2018 contribution made before the due date of the 2018 tax return?

If a 2019 contribution then enter it in the the IRA contribution section for a Roth IRA and then in the interview that you "switched" it to a Traditional IRA and answer the remaining questions.

[ibbietax]

To answer @macuser_22 ,the $6000 contribution to the Roth IRA in January, 2019 was a 2019 contribution. I then recharacterized $6040 as a traditional IRA in June, 2020 ($6000 + $40 gain). I then converted $6040 back to Roth IRA in June 2020.

However, it's still not clear how I answer these questions.

Under "Deductions and Credits," I went to "Traditional and Roth IRA Contributions."

I selected that I own or contributed to both a traditional roth IRA in 2019.

The next question asks "Did you contribute to a Regular IRA?" (I don't know how to answer this because I did not make a contribution, but I made a recharacterization. I'll say no for now)

Then it goes into some questions not applicable for the traditional IRA before moving into questions about the Roth IRA.

Next, it asks, "Did you contribute to a Roth IRA for 2019, including if it was recharacterized to a traditional IRA" (I said yes, because I made the contribution in January 2019).

Then it asks how much of the $6000 I contributed did I recharacterized to a Traditional IRA (I answered $6000)

Then, it asks me to fill in the interview, for which I indicated I recharacterized $6086 from Roth IRA to Traditional.

Are these steps correct for my situation in your opinion?

[macuser_22]

I suggest that you re-visit the IRA contribution interview and UNCHECK any checkbox on the first page and the press continue to delete anything that you entered.

Then return again to that section and ONLY check the Roth box since that is the ONLY contribution that you made.   Enter the amount of the Roth contribution.

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.

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 2018 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.

You will want ti to be non-deductible.

[ibbietax]

@macuser_22  Thank you.

Regarding only checking the Roth box (not checking the traditional box), that specific question asks, "Select the kinds of IRAs you own or will contribute to for 2019."

If I only select "Roth," I will be ignoring the fact that I owned a traditional IRA in 2019, so that part confuses me.

[macuser_22]

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@ibbietax wrote:

@macuser_22  Thank you.

Regarding only checking the Roth box (not checking the traditional box), that specific question asks, "Select the kinds of IRAs you own or will contribute to for 2019."

If I only select "Roth," I will be ignoring the fact that I owned a traditional IRA in 2019, so that part confuses me.

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Read what I posted.   It does not ignore it.    When you say you "switched" the Roth contribution to a Transitional IRA and enter the explanation then it IS a Traditional IRA contribution.   It is the explanation statement that reports it as a Traditional IRA contribution, not the check box.

[ibbietax]

@macuser_22  Thanks. Yes, I read what you wrote several times, however something is still not clear to me.

Why would they pose the question in such a way ("select the IRAs you OWNED"). Meanwhile, even though I OWNED the IRA, I'm not selecting it. Perhaps an oversight on Turbotax's part.

[macuser_22]

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@ibbietax wrote:

Why would they pose the question in such a way ("select the IRAs you OWNED"). Meanwhile, even though I OWNED the IRA, I'm not selecting it. Perhaps an oversight on Turbotax's part.

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You did not "own" a Traditional unless you already has an existing Traditional IRA prior to the recharacterization.

The reason they ask is simply so you can deal with prior year excess contributions and penalties if you has excess Traditional IRA contributions in the past and penalties.   It will not harm anything to check both boxes as long as you answer NO to the question "did you contribution to a Traditional IRA?" - you did not - you contributed to a Roth IRA.    The rest of the questions are meaningless and unnecessary, and confusing.

[ibbietax]

I understand. Thank you @macuser_22