Dear Experts,
I'm need some clarity on how to deal with income on IRA contribution between rollovers, recharacterization across Roth and Traditional IRA.
Background:
My Questions:
Please feel free to ask for clarifications. Any help will be appreciated.
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If the resulting traditional IRA contribution is nondeductible (or you choose to treat it as nondeductible if it would otherwise be deductible), the $6,500 adds to your basis in nondeductible traditional IRA contributions which factors into the calculation of the taxable amount of your Roth conversions. IF you have other money in traditional IRAs, some portion of your basis will be applied to the Roth conversions and the rest will remain in your traditional IRAs to be applied to future traditional IRA distributions. If you have no other money in traditional IRAs, your entire basis will be applied to your Roth conversions to make that amount of the conversions nontaxable.
The calculations are all done on Form 8606. TurboTax prepares Form 8606 automatically when you enter all of the information for the transactions that you have described here.
Okay. Thanks, @dmertz ,for the explanation. This is helpful. I need another help in dealing with the tool.
Turbotax is also asking me if I contributed to IRAs this year and if yes then to which Traditional or Roth? What should I say? Consider the following situations for me and my spouse we did two different things.:
recharacterization: the original amount to the first IRA you report as contribution to the second IRA, earnings move but are ignored.
You must use a trustee-to-trustee transfer.
report this on your tax return for the year during which the contribution was made.
You made a $6,500 Roth IRA contribution and then "switched" (recharacterized) it to be a $6,500 traditional IRA contribution instead. That's what you indicate to TurboTax. Nothing to enter as contributions originally made to the traditional IRA
Your spouse made some amount of Roth IRA, contribution, switched that amount to a traditional IRA, so that portion would be entered the same as yours. The contribution made directly to the traditional IRA is to be entered as an original traditional IRA contribution.
The Roth conversions are separately entered transactions.
The results of all of these entries will come together on each of the Forms 8606.
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