2022 Roth IRA conversion from 2021 contribution

Forum|Forum|3 years ago
February 26, 2023
7 replies
12 views

In 2021, my spouse and I each contributed $6000 to our Roth IRAs. Later, we learned that our 2021 combined income was too high for Roth contributions, so in early 2022 we recharacterized our contributions as traditional contributions. My spouse's recharacterized value was $6446, and my recharacterized value was $6174.

Later in 2022, we each used a backdoor Roth conversion to move this money into our respective Roth IRAs. At that time, the value of my spouse's conversion was $6120 and my conversion was $6169. All the money that we converted had been initially contributed in 2021 and recharacterized in early 2022 (our traditional IRAs had $0 in them at the beginning of 2022).

Later in 2022, I contributed $1500 to my traditional IRA, and my spouse contributed $4774. We did not do any more backdoor Roth conversions in 2022.

We received 1099-Rs for our recharacterization and our backdoor Roth conversions. The recharacterization 1099-Rs do not have a taxable amount, and the 1099-Rs from the backdoor Roth conversions have "Taxable Amount not determined" checked.

1) How much of the recharacterization/Roth conversion is taxable, and how do we correctly input this into Turbotax, given that the contributions were made in 2021, but the backdoor Roth conversion was done in 2022?

2) Do we need to file an amended Form 8606 for 2021?

Thank you very much.

TurboTax Premier Online

DanaB27

Employee Tax Expert

2) Yes, if you did report the recharacterization on your 2021 tax return and had Form 8606 with the basis on line 14 then you will have to amend your 2021 tax return.

You will enter the recharacterization when you enter the contribution to the Roth IRA on your 2021 tax return:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “Roth IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount $6,000
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)
TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (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)

You will get Form 1099-R for the recharacterization with code R-Recharacterized IRA contribution made for 2021 and this belongs on the 2021 return. But a Form 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore Form 1099-R with code R.

1) TurboTax will calculate the taxable amount on Form 8606 and you will have a basis on line 14 to carry over to 2023 since you did not convert the contribution for 2022 in 2022.

Please review the steps below for your 2022 tax return:

To enter the nondeductible contribution to the traditional IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (since you had a basis in the prior year)
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:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
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”
On the "Review your 1099-R info" screen click "Continue"
Answer "yes" to "Any nondeductible Contributions to your IRA?" since you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

Melissa_514Author

Level 2

Thank you for the assistance.

Regarding the steps below "To enter the nondeductible contribution to the traditional IRA:", Step 6 states: "Enter the amount you contributed"

Is this the amount that each of us contributed directly to our Traditional IRA in 2022, or does it include the amount from 2021 that was recharacterized in 2022? That is, should I enter $6000 or $12,174.39?

Again, thanks for the help.

DanaB27

Employee Tax Expert

For step 6 on your 2022 tax return you will only enter the amount directly contributed to the traditional IRA for 2022 ($1,500 for you and $4,774 for your spouse according to the original post).

On your 2021 tax return, you won't enter any direct contribution to the traditional IRA since you made a direct contribution to the Roth IRA and then recharacterized it.

@Melissa_514

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"