Backdoor Roth IRA with a twist

[Tday0755]

-I need help with my Form 8606.  I' not sure what goes on the form and what doesn't

In 2018 I paid excess contributions to my Roth IRA and filed a 5329 with my tax return and paid tax on the excess contribution of $3570.

-In 2019 I continued to contribute to my Roth IRA until 5/20/2019 at which time I opened up a Traditional IRA and recharacterized both the 2018 Excess amount with earnings ($3756.37) and the 2019 YTD contributions with earnings ($2652.19) for a total of $6408.56.  

-I continued to make contributions to the Traditional IRA until Dec (an addition $3500), at with time I converted the entire balance in the Traditional IRA to a Roth IRA.($10,714.02)

-These were instructions from Fidelity.  I have read and looked at several videos, but I cannot figure out how to put this on the 8606 and is there anything required on the Form 5329?.  

-I did add all the 1099-Rs to the tax return and the recharacterized amounts are not showing up as taxable, but what do I do with the 10714.02?  

[ThomasM125]

The $10,714.02 conversion to a ROTH IRA should have been reported on a form 1099-R which you would enter like any other form 1099-R entry. Just enter the numbers from the form and answer the questions in TurboTax.

Forms 8606 and 5329 would be populated automatically by TurboTax, as required.

[macuser_22]

1)  If you recharacterized the 2018 excess to a Traditional IRA before the due date of the 2018 tax return (Apr 15. 2019) or extended die date if you timely filed an extension, then you would not pay any penalty on the excess if you were otherwise eligible to make a Traditional IRA contribution.    Reharacterization means that the Roth contribution never occurred and the contribution was to a Traditional IRA instead.  There shiukd be no 2018 5329 at all.

2) Recharacterizing the 2018 contribution on the 2018 tax return should produce a 2018 8606 form with the non-deductible contribution on line 1,3 and 14 (unless you also had prior year non-deductible contributions on line 2.)

3) Recharactorizing a 2019 Roth to Traditional IRA in 2019 should produce a 2019 8606 with the 2019 non-deductible contribution on line 1, the carry-forward 2018 8606 line 14 amount on line 2, and total of both on line 3.

4) Any additional 2019 non-deductible Traditional IRA contributions (up to the allowable limit) would add to the 8606 line 1 amount so that the 2019 total of new and recharactorized would be on line 1.

All 8606 line 1 amount are entered in the IRA contribution interview.  The line 2 is entered in the 1099-R interview where is asks for prior years non-deductible contributions and you enter the 2018 8606 line 14 value.

[macuser_22]

The 2018 recharactorization should be reported to you on a 1099-R form with a code R in box 7 and the 2019 with a code N.   See below for how to enter it.  (code R and N are entered the same way.)

A 2019 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2018 and recharactorized in 2019) will tell you that you must amend 2018.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2018 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2018 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2018 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2018 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

Here it the complete backdoor Roth procedure once you have the recharactorizations taken care of.

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2019 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2019.     (Usually zero unless you also made a 2018 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2019 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2019, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion