over-recharacterization

kws3 — Sat, 29 Mar 2025 18:55:34 GMT

Hello!

I am doing my son's taxes. This year, for the first time, he made too much $$ to contribute to his Roth. He recharacterized, but did too much. Turbotax its telling me he contributed too much, which isn't true, but I don't want to reduce the amt the recharacterized because that would not represent what happened and would generate an incorrect Form 8606 for this year and an incorrect 1099-R for next year.

Details:

4/5/24 & 4/10/24 - Contributed $2500 to Roth.

5/10/24 – Realized he was over the limit. Opened a Trad IRA. Rechar $2500 plus gains fr Roth to Trad.

5/15/24 - Converted the recharacterized amount, leaving 0.00 in Trad.

5/22/24 – Contributed $1500 to Roth (uggh!)

3/5/25 - Realized (again) he was over the limit. Instead of recharacterizing $1500, he rechar the entire $4000 he had contributed for the year.

3/6/25 - Converted the full amount recharaterized, leaving 0.00 in Trad.

Summary:

Total Roth Amt contrib was $4000. Total amount Rechar to Trad was $6500. So, he really recharacterized $$ from his Roth that had been from previous years’ contributions.

Separately, he contrib $3000 to Trad which he converted to Roth shortly after, leaving 0.00 in Trad.

Turbotax entries for Roth:

Roth IRA Contributions: $4000

Tell us how much you transferred (recharacterized): $6500

Explanation statement:

$4000 contrib to Roth 4/5/24 & 4/10/24 & 5/22/24

$2500 plus $17.93 gains = $2517.93 recharacterized 5/10/24

$4000 plus $324.03 gains = $4324.03 recharacterized 3/5/25

This was $2500 too much. $2500 was really from older Roth $$.

Enter Excess contributions: $0.00

Turbotax gives message “Income too high to deduct an IRA Contribution”. A second paragraph under that says “Also, deductible IRA contributions cannot exceed $7000….”

TT next gives the message “You currently have a penalty”. It goes on to say the penalty is 6% per year and the way to fix it is to take $2500 out of the I IRA, etc..

The problem is that he did not contribute too much, he recharacterized too much.

If I change the recharacterization in Turbotax to $4000, it will not accurately represent the truth, plus the IRS Form 8686 with the 2024 taxes will be incorrect and the 1099-R produced by Fidelity in 2025 will be incorrect. If I leave it at $6500, TT is telling me to take out $2500 or be penalized if I don’t.

My son has learned his lesson, so it will be ok for the future 😊, but what should I do to resolve this dilemma?

Thank you!

Kathy

Re: over-recharacterization

fanfare — Sat, 29 Mar 2025 23:47:34 GMT

Duplicate post.

topic over-recharacterization in Retirement tax questions

over-recharacterization

Re: over-recharacterization