Recharacterization of Roth IRA to traditional IRA followed by conversion to Roth

[redbull2395]

Hello,

I have a question regarding recharacterization of a Roth IRA to a traditional IRA followed by a conversion back to the Roth IRA. I contributed $6,000 on 3/3/2022. Throughout the year, I had an unexpected increased in income and realized I would be above the income limit to contribute, so I recharacterized my Roth contributions ($5272 at that point secondary to losses) on 12/19/2022 and then converted it back ($5,231) on 12/22/2022. I have two 1099-Rs from Vanguard, one for the Roth with a distribution code of N in box 7, and one for the traditional IRA. I was just hoping for guidance on how to properly input this into TurboTax. I have been able to input the 1099-Rs, but was wondering what the appropriate value to put in the explanation statement for "The Amount Transferred (Recharacterization plus earnings or losses): " would be - if that would be the $5272 or if I would need to calculate this number a different way using my original contribution. Any help is appreciated. Thanks.

[DanaB27]

You will enter the recharacterization when you enter the contribution to the Roth IRA: 

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount of $6,000
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $6,000 minus $728 loss was recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since you are doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

To enter the 1099-R conversion: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[redbull2395]

Just to clarify, for the explanation statement, the "amount recharacterized" will be $6,000 and under the "amount transferred" that is where I will report the "$6,000 minus $728" in losses?

Thank you so much!

[DanaB27]

No, on the “Tell Us How Much You Transferred” screen next to “Amount switched from a Roth IRA to Traditional IRA” you will enter $6,000. The full $6,000 contribution is considered to be recharacterized even when less was actually moved to the traditional IRA because of the loss.

And on the “Roth IRA Explanation Statement” screen you will enter “The original $6,000 minus $728 loss was recharacterized”.

[redbull2395]

Got it! Thank you again for your help!