excess Roth IRA Contribution

[david-k1]

We are re-characterizing a Roth IRA contribution due to income exceeding allowable (paying all the extra taxes and reporting the earnings) and putting into a traditional IRA and want to transfer to a backdoor Roth. How long must you wait before you can convert or roll over your funds back to a Roth IRA from the Traditional IRA?

[macuser_22]

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@david-k1 wrote:

We are re-characterizing a Roth IRA contribution due to income exceeding allowable (paying all the extra taxes and reporting the earnings) and putting into a traditional IRA and want to transfer to a backdoor Roth. How long must you wait before you can convert or roll over your funds back to a Roth IRA from the Traditional IRA?

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No waiting.  Immediately.  

But note that the recharacterization must be reported in the tax year that the contribution was *for* and a conversion in the tax year converted.

The proper way to report the recharacterization and earnings which is to enter the 2020 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

[2019victor]

Hi @macuser_22 ,

In my case, I re-characterize from Roth to Traditional IRA for 2020, continue invest in traditional IRA (AA $ basis + BB $ earning). In 2021 I will contribute 6k non-deductible to traditional IRA. I would like to convert all AA+BB+6k to Roth as back door. How to enter them to turbotax?

Please correct me if I'm wrong, form 8606 will be:

Line 14:  AA basis+6k

Line 15c: BB earning

Line 16: AA+BB+6k

Line 17: AA+6k

Line 18: BB earning

Are they correct? Please advise.

Thank you. 

[macuser_22]

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@2019victor wrote:

Hi @macuser_22 ,

In my case, I re-characterize from Roth to Traditional IRA for 2020, continue invest in traditional IRA (AA $ basis + BB $ earning). In 2021 I will contribute 6k non-deductible to traditional IRA. I would like to convert all AA+BB+6k to Roth as back door. How to enter them to turbotax?

Please correct me if I'm wrong, form 8606 will be:

Line 14:  AA basis+6k

Line 15c: BB earning

Line 16: AA+BB+6k

Line 17: AA+6k

Line 18: BB earning

Are they correct? Please advise.

Thank you. 

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No.  Not correct.   On your 2020 tax return  enter the 2020 Roth contribution in the contribution intervene and say that it was "switched" (recharactorized) to a Traditional IRA that will put the *contribution* amount (not earnings) on the 2020 8606 line 1, 3 and 14.    Nothing else.

If you are converting in 2021 the you will receive a 2021 1099-Rnext January to report it on yiur 2021 tax return next year.

[2019victor]

Hi @macuser_22 

Thank you so much. I asked for 2021. I know too early to ask for 2021, but just for my understanding how roth backdoor work so I can confident to apply it. 

I re-post my question here:

Re-characterize from Roth to Traditional IRA for 2020 (AA $ basis + BB $ earning: from 1099R 2021)

Continuen to invest in traditional IRA (AA $ basis + BB $ earning 2020 +  CC$ earning 2021).

In 2021 contribute 6k non-deductible to traditional IRA.

Convert all AA+BB +CC+6k to Roth 2021 as back door.

How to enter them in turbotax for 2021?

Form 8606 2021 will be:

Line 14:  AA basis+6k

Line 15c: BB + CC earning

Line 16: AA+BB+CC+6k

Line 17: AA+6k

Line 18: BB+CC earning

Is this correct? Please advise. Thank you. 

[macuser_22]

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@2019victor wrote:

Hi @macuser_22 

Thank you so much. I asked for 2021. I know too early to ask for 2021, but just for my understanding how roth backdoor work so I can confident to apply it. 

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Reread my answer - it is the same.

You said a "for 2020" recharacterization.    ONLY the recharacterization goes on your 2020 tax return - nothing else.   The *conversion* goes on your 2021 tax return.