Recharacterization of Roth IRA contributions to non-deductible traditional IRAs; I need help!

[Coach209]

My  wife and I contributed to our Roth IRAs in early 2016, BUT we exceeded income limits for that year. So, in March 2017, we recharacterized those contributions to non-deductible traditional IRAs. We filed Forms 8606 with our 2016 joint return along with info on the original contributions and recharacterization. Do we report any of this recharacterization info in our 2017 Turbotax return? I input one of the two 1099-R forms the custodian sent on these recharacterizations, and Turbotax is saying I may need to amend our 2016 return! Why?

Also, our original, early 2016, Roth contributions were both $6,500 (since we are over 55). However, the recharacterization amounts, or gross distributions in line 1 of the 1099-Rs from our custodian, are both over $6,500. Is this anything to be concerned with, as far as non-deductible IRA contribution limits? These recharacterized amounts were given in our 2016 return on an "additional information" page for the forms 8606.  Thanks for any help!

[LisaBr · Accepted solution]

The system automatically generates the message that "you MAY have to amend your 2016 tax returns".  From what you are saying, you do not need to amend your 2016 returns.  You included the 8606 and contribution / recharacterization with that return.  You are ahead of other tax filers who did not take care of this correctly.

The distributions on the 1099-R's will include earnings from each account as well as your contributions.  It does not affect the IRA contribution limits.

Since you have reported your contribution amounts for recharacterization purposes, the earnings are just part of the distributions from the Roth's to the IRA's which must be reported by your financial company. 

[Coach209]

Thank you, TurboTaxLisaBr! From your answer, I suspect I do NOT need to address these recharacterizations in any way on my 2017 federal income tax return in TurboTax and I should NOT include the two 1099-Rs in what I input to TurboTax for 2017. Is this correct? Thanks again.

[macuser_22]

A 1099-R with a code R, if entered into the 2016 software will be ignored.  The recharactorization can only be reported in the IRA contribution section with an explanation statement.   Between the 1099-R sent by the account trustee and your 2016 explanation statements is how the IRS gets the information.  

If you already did that in 2016, then there is noting else to do.

[Coach209]

Thanks, macuser_22. So, the higher-than-$6,500 amounts on the 2017 1099-Rs from the custodian are not a problem and should not be input. I guess these are for my information only.

[macuser_22]

The 1099-R box 1 reflects the contribution plus any earnings.

When entering the recharacterization in the 2016 IRA contributions interview the amount that is recharacterized is the actual amount of the Roth contribution, not including any earnings.   

The IRA custodian moves the earnings along with the contribution.  Your explanation statement should have said $xxxx Roth contribution recharactorized to Traditional IRA and $xxx earnings moved.

If the explanation did not say anything about earnings, don't worry about it as long as you did not include the earnings in the recharactorization.  

The amount recharactorized (the amount of Roth contribution) would either become a 2016 deductible Traditional IRA contribution or a non-deductible 2016 contribution reported as a basis on line 14 on a 8606 form that will carry forward to lower the taxable amount for future distributions.    The earnings were not contributions so they are simply moved to the Traditional IRA and are not part of the recharacterization.

[Coach209]

Thanks, macuser_22! So, from your responses, I think I have already done what I needed to on our 2016 return, the 1099-Rs that the custodian, with the $6,500 original amount plus earning was for our information only, and that I do NOT need to include any of this, even the 1099-R forms in our 2017 Turbotax return. As you said early, "If you already did that in 2016, then there is nothing else to do."

Nice!  Thanks again.