2023 Roth excess contribution AND a re-characterization to traditional--entering correctly

[trailgirl]

First, I had an excess contribution to a Roth, but I ALSO had to re-characterize a separate amount to a traditional IRA so I could take that deduction.  Both completed on time.  I want to enter everything correctly, so can somebody walk me through Turbotax to make sure I show actual (either total minus excess or just final) Roth contribution, minus excess removal, plus IRA contribution plus re-characterization?  To clarify, both Roth and traditional had regular contributions and the Roth still has a contribution after both the excess removal as well as the re-characterization.  I hope I'm explaining this well enough.  

[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 "Traditional IRA" and “Roth IRA”
5. Answer ‘Yes” on the “Traditional IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the total traditional IRA contribution amount (direct contribution of $150)
8. Answer ‘Yes” on the “Roth IRA Contribution” screen
9. Answer “No” to “Is This a Repayment of a Retirement Distribution
10. Enter the total Roth contribution amount of $7,350
11. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount of $3,000 that you recharacterized to traditional IRA (no earnings or losses) on the next screen.
12. 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.
13. On the penalty screen enter the excess contribution amount that you withdrew before the extended due date
14. On the screen "Choose Not to Deduct IRA Contributions" answer "No" since you want to take the deduction. (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 clarify, when did you withdraw the 2023 excess contribution amount? You requested the withdrawal of excess Roth IRA contribution plus earnings? 

[trailgirl]

both the excess removal and the re-characterization were done this past month.  During 2023, I had only put $150 into the traditional IRA, but then re-characterized another $3000 from the Roth.  Do I enter $150 or $3150 into the box for the contribution to traditional IRA?

[trailgirl]

I think you may have answered that last question by saying "direct contribution" only, meaning the $150.  Which I imagine that if I directly contributed $7350 into the Roth before excess removal and re-characterization, that $7350 is the number I start with, on the Roth side?

[DanaB27 · Accepted solution]

Yes, you will enter $150 as the traditional IRA contribution.

Yes, if you contributed $7350 directly to the Roth IRA then you will enter this as the Roth IRA contribution.

If you made an excess contribution in 2023 and withdrew the 2023 excess Roth IRA contribution plus earnings in 2024 before the due date, then you will get a 2024 Form 1099-R in 2025 with codes P and J. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

[trailgirl]

please forgive me for being weary as I am dealing with a death in the family.  How do I continue filling out the next "additional information" form about including earnings and losses if I have no form explaining that until 2025?  And Turbotax will, I assume, after that, allow me to enter the excess removal info also (but may again ask me about earnings/losses?) ?

[DanaB27]

Can you check your statement how much was transferred into the traditional IRA from the Roth IRA when you recharacterized the $3,000? If you transferred more than $3,000 then you had a gain and if you transferred less than $3,000 then you had a loss.

Yes, after a few more screens you will get  the penalty screen where you can enter the Roth IRA contribution amount that you withdrew before the due date.

I’m sorry for your loss.