In 2022 calendar year we made a traditional IRA contribution, on the same day we did a distribution, and deposited the money into one of our Roth accounts. The idea was to do a Roth backdoor conversion since we expected our MAGI was too high.
It turns out our MAGI was not too high so we could have made the original contribution directly to our Roth account, so we want to treat this as a recharacterization.
The issue is we received a 1099R with the code of 7-Normal Distribution, which makes the distribution taxable. But, if we want to recharacterize the original contribution should our account administrator issue us a new 1099R with a code of N for a recharacterization of an IRA contribution to a Roth within the same year?
Also, would this code change, if it is possible, make the distribution non-taxable?
Thanks for helping.
you can't recharacterize the Roth to Traditional because you already used up your contribution limit with the original contribution.
A Back door Roth contribution using conversion is the same as a direct Roth Contribution but only works with certain initial conditions.
If your IRA had any funds already before you started your adventure, you just cannot do a backdoor Roth contribution that is tax-free.
I revised my answer above and removed my suggestion.
I'll leave it to someone else to offer the correct solution to your dilemma.
Sorry for any confusion this may have caused.
I see that you're asking to recharacterize in the opposite direction than I spoke about above.
See IRS Pub 590-A page 28 for a discussion and example of what you want to do.
You did a Roth conversion and must report it as such. A Roth conversion is irrevocable. There would be no benefit from treating it as a recharacterization anyway unless you have other funds in a traditional IRAs.
You can have the option to make the IRA contribution nondeductible even if you qualify for deducting the IRA contributions. As long as you have no other funds in a traditional IRA, there is no tax difference between making a nondeductible traditional IRA contribution and converting to Roth, and making the contribution directly to the Roth IRA.
Even if you deducted the traditional IRA contribution, the only difference would be that it would be 5 years before you could withdraw the converted funds without penalty if under age 59½. Your AGI would still be the same with the IRA deduction offsetting the taxable income from the Roth conversion.