Roth IRA recharacterization

Forum|Forum|2 years ago
March 18, 2024
1 reply
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I contributed to Roth IRA for 2023 a week ago then found that I'd have a big tax due (>$700) then I started working on my 2023 tax filing; that leads to a possibility of recharacterizing the contributed 2023 Roth IRA to traditional IRA in order to take the income deduction to bring my possible tax refund (>$600). My numbers are not huge but my income is low and they are meaningful to my financial situation. I was told once I submit the request to "recharacterize" I cannot undo it. I have never encountered "recharacterization" and very nervous about how difficult and complicate it may be for filing tax. Could someone advise what are the process, risk, etc. anything I need to know before I request to recharacterize?

Thank you very much!

Not A Product Question

SusanY1

Level 15

Recharacterizing your contribution from Roth to Traditional is just a way of correcting the type of contribution that you made. The effect, in the end, will be the same as if instead of making a Roth contribution you had made a Traditional one for tax year 2023. The only difference relates to any earnings or gains on the original contribution to the Roth.

Depending on the amount of your recharacterized contribution and earnings, you could see some taxable income as a result, but that will be income that is reported next year (if it applies) and your IRS custodian will provide you with the necessary information on a Form 1099-R to properly report the transaction.

It won't complicate your tax filing much— the TurboTax interview will walk you through it both this year and next year.

It sounds like you will benefit from making the switch over to a deductible traditional IRA and this is a fairly routine transaction that TurboTax handles well. If you have any questions as you go through the process, you can return here for help with the entries into the program.

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AnhVAAuthor

Level 2

I'm sorry, a question, Will I or will I NOT receive a 1099-R for 2023? and maybe a 1099-R for 2024 IF there's a gain or loss to the original Roth contribution? Thank you!

karifiles

Level 2

Yes, if you select to make the contribution nondeductible or it is nondeductible because you had a retirement plan at work and are over the limit then TurboTax will fill out Form 8606.

Yes, you will receive Form 5498 and 1099-R and should keep them for your records. Please see How Long Do Federal and State Tax Returns Need to Be Kept? for additional information.

@karifiles

Thank you! I appreciate the help.