Recharacterization in 2022 for 2021 - How to Proceed?

[OCBaseballNut]

I contributed to my Roth in 2021, however when doing my taxes in 2022, TurboTax showed that my AGI was too high, so I had to recharacterize the Roth contribution to a Traditional in 2022 for 2021.  This was realized and corrected before taxes were filed, so the recharacterization explanation was provided on the original return (a Form 8606 was generated, so I don't think an amended return is required).  The recharacterization was subsequently also converted to Roth later in 2022.  So all the money discussed here is now "Rothified" and the Traditional basically has zero in it (but is still open).

In 2022, because I knew my AGI would be too high, I proactively contributed $6,000 to my Traditional IRA, then did a Roth conversion on that amount.  In other words, a recharacterization (for 2021) and regular contribution (for 2022) and a re-conversion of the recharacterized money all occurred in calendar year 2022.  All is now Roth, none is Traditional.

Fast forward to 2023, I received a 1099-R for the recharacterized amount (with my Roth account number on it and Code R in Box 7) and one that appears to contain the Roth conversion amount plus the recharacterized amount (with my Traditional IRA account number on it).  I also got Form 5498 for my Traditional IRA that shows the regular $6,000 contribution (Line 1 on 5498) and the $6,157 recharacterization for 2021 that was processed in 2022 (Line 4 on 5498).

My question is:

• I've entered all the 1099-R forms into my return... How do I tackle the "Traditional IRA and Roth IRA" section when working on my return this year for 2022 to reflect both the normal Traditional contribution that I converted and the Roth conversion that I recharacterized for 2021?
  • Do I check both boxes for contributions to a Traditional and a Roth? And if so,
  • Which amounts go where?

In advance of any replies, thank you!

[DanaB27 · Accepted solution]

First, you can ignore Form 1099-R with code R since it will do nothing to your return. You can only report recharacterizations in the contribution section and it seems you did that successfully on your 2021 tax return. You should have a 2021 Form 8606 with a basis on line 14 which will be entered in your 2022 return (if not carried over automatically).

To enter the nondeductible contribution to the traditional 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 “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (since you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (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?" since 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

[OCBaseballNut]

Wow, my taxes owed dropped significantly when I added $6,000 as the basis (as shown on last year's 8606).  I'd had the basis as zero, previously.

I'm now on the 1099-R for with the conversions on it.  Since everything (the normal Roth conversion and recharacterized-then-converted monies) eventually became Roth, do I indicate that "Yes, all of this money ($12,284.02) was converted to a Roth IRA?" or only the amount that wasn't recharacterized then re-deposited into the Roth ($5,987.39 due to share price fluctuations)? 

[DanaB27]

Yes, you will select "Yes, all of this money ($12,284.02) was converted to a Roth IRA?" since you converted the recharacterized and regular contribution to the Roth IRA in 2022.

[OCBaseballNut]

Thank you for your help with this!  You've made my day.. 😃