topic Roth IRA recharacterization in Get your taxes done using TurboTax

Roth IRA recharacterization

hpdkid — Mon, 17 Feb 2020 03:58:28 GMT

In March, 2019, I had to withdraw a 2018 Roth contribution of $6500 plus the earnings when TurboTax flagged it. I have 1099-R for it. I transferred the funds into an (empty) IRA account which had previously been converted to a Roth in 2018. Later in 2019, I transferred the funds back into the Roth account, but the value had declined to less than $6500. I have a 1099-R for it also. Now TurboTax is warning me that I should amend the 2018 return to declare the earnings portion of the withdrawal and pay tax on it. Where exactly do I declare this amount? Do I call it miscellaneous income and use the 2019 1099-R as proof? Do I also need to pro-rate the taxable portion of the 2018 conversion by factoring in the (non-taxable) funds that got added in 2019?

Re: Roth IRA recharacterization

DanaB27 — Mon, 17 Feb 2020 20:37:17 GMT

No, for the withdrawal of the Roth contribution of $6500 plus the earnings you will enter the 1099-R you received in your 2018 amended tax return. Please see How do I amend a 2018 return in TurboTax? for additional information.

If I understand correctly you also converted funds from a traditional IRA to a Roth IRA and this traditional IRA had nondeductible contributions. After you enter your 1099-R, TurboTax will ask follow-up questions, one of them about "if you had any nondeductible contributions" and you will be able to enter the amount. Please see the detailed instructions below:

Login to your TurboTax Account
Click "Federal" from the left side of your screen
Scroll down to “Retirement Plans and Social Security” and click “Show more”
Scroll down and click "Start" next to "IRA, 401(k), Pension Plan Withdrawals (1099-R)"
Answer "Yes" to the question "Did You Have Any of These Types of Income?"
Click "I'll Type it Myself"
Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
Click "Continue" and enter the information from your 1099-R
Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
Then choose “I converted all of this money to a Roth IRA account.”
On the "Your 1099-R Entries" screen click "continue"
Answer "yes" to "Any nondeductible Contributions to your IRA?"
Answer the questions about the basis

Please be aware that the whole distribution will show as income in TurboTax on the summary screen which shows gross income, not taxable income. To verify that the entry is correct please look at form 1040 line 4b (taxable amount).

To preview Form 1040:

Click on "Tax Tools" in the left menu
Click "Tools"
Click "View Tax Summary" in the Tool Center window
Click on "Preview my 1040" on the left

Re: Roth IRA recharacterization

macuser_22 — Mon, 17 Feb 2020 20:44:17 GMT

What is the box 7 code on the 1099-R for the recharactorized amount?

Re: Roth IRA recharacterization

hpdkid — Tue, 18 Feb 2020 16:43:17 GMT

Thanks for your detailed reply. If I underestand correctly, you are suggesting that the 2019 1099-R should be reported as part of amending my 2018 return, making sure that the $6500 basis is accounted for. That means I do not report it on my 2019 return-- is that correct?

I would also like clarification of the Roth conversion that was done in 2018. Here is the timeline:

In March, 2018, 100% of IRA funds were transferred to the Roth account. (tax on the entire amount was paid as part of the tax return in April, 2019)

In April, 2019, about $6700 was transferred from the Roth account back into the IRA account.

If I amend the 2018 return now, do I still treat the March Roth conversion as 100% taxable, or do I factor in the non-deductibe $6500 as technically part of that conversion, even though it did not come in until 2019? If so, will it trigger any tax on the leftover amount in 2019? Thank you very much!