Traditional and back door roth ira

[ysingh121]

Hi there, 

Im a high income earner not qualifying for direct roth ira contributions. I by mistake deposited 7k in roth ira, had some $250 gains and then had vanguard sell it all as a recharacterization and then vanguard did a conversion to roth ira. They said I'll have to pay taxes on the gains. Can you please tell me how to file taxes in both income and deduction sections? I received two 1099-R one for traditional ira and other for roth ira. This was my first time contributing to iras..

[DanaB27]

Yes, the gains are deemed to have been earned in the traditional IRA because of the recharacterization. These gains are taxable when you convert the funds to Roth IRA.

You will enter the recharacterization when you enter the contribution to the Roth IRA for 2024:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. 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.
9. 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.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" if you are thinking about doing a backdoor Roth. Otherwise select "No". (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)

To enter the Form 1099-R for the conversion: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue" after entering all Form 1099-Rs
6. Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs