topic IRA Recharacterization in Retirement tax questions

IRA Recharacterization

abutaghizadeh — Tue, 11 Mar 2025 00:29:37 GMT

My wife recharacterized $8K of her 2024 IRA to a Roth IRA in Nov. 2024. As a result, about $10,000 was moved from her traditional IRA into her Roth IRA. We did receive an 1099-R, with box 1 showing $10K, box 2a is 0 and 2b is unchecked. After I entered 1099-R in the TurboTax Deluxe (desktop), I received this message: "Your Roth Contribution Was too high" , flagging the extra $2000 as the "excess contribution". I'm not sure why I'm getting this message considering that the recharacterization in not a taxable event. Any help is appreciated.

Re: IRA Recharacterization

ThomasM125 — Tue, 11 Mar 2025 01:28:37 GMT

I believe you mean you converted money from your traditional IRA into a Roth IRA.

You should not have gotten the error message from entering the Form 1099-R. It is possible you entered a Roth IRA contribution to report the money going into the Roth IRA in addition to entering the Form 1099-R reporting the rollover. That would be incorrect, but may lead to the error message you are receiving. You would not enter a Roth IRA contribution if you did a rollover, you would just enter the Form 1099-R.

Another possibility is that you contributed $8,000 to a traditional IRA in 2024 and then attempted to recharacterize $10,000 into the Roth IRA. That would be interpreted by the IRS as contributing $10,000 to your IRA, which would put you over the annual limit. Instead of doing that, you would need to report $8,000 as the amount recharacterized and the additional $2,000 would have to a Roth IRA conversion, as mentioned in the first paragraph.

[Edited 3/10/25 @6:27 PM PST]

@abutaghizadeh

Re: IRA Recharacterization

dmertz — Tue, 11 Mar 2025 11:35:53 GMT

The reply made by @ThomasM125 does not correctly address your situation.

The fact that box 2a has a zero, box 2b Taxable amount not determined is not marked and the traditional IRA contribution was made for 2024 indicates that the Form 1099-R has code N in box 7 indicating a recharacterization, not a Roth conversion. Your wife originally made an $8,000 traditional IRA contribution, so you need to enter the $8,000 traditional IRA contribution, then, when TurboTax asks if your wife "switched" the contribution to be a Roth IRA contribution you must indicate that she switched (recharacterized) $8,000 to be a Roth IRA contribution instead. TurboTax will require you to add an explanation statement describing that $,8000 was contributed to a traditional IRA, $8,000 was recharacterized and that $10,000 was transferred to the Roth IRA, including $2,000 of net income attributable to the $8,000 that was recharacterized.

It appears that you are somehow entering a $10,000 amount when she contributed only $8,000 and recharacterized that $8,000. If $2,000 of the $8,000 contribution was really an excess contribution and assuming that you file jointly, that would imply that your Modified AGI for this purpose is about $237,500, limiting her resulting 2024 Roth IRA contribution to $6,000

After entering the code-N Form 10990-R, $10,000 will be included on Form 1040 line 4a but there will otherwise be no effect on your tax return.