Hello All,
Last year 2022 while filing 2021 taxes, I discovered that our MAGI was too high for a Roth IRA contribution. I had already contributed 6k to my Roth for 2021 (in September of 2021). In March of 2022 I recharacterized this full contribution to a non deductible Traditional IRA and completed a recharacterization statement in Turbotax. The amount recharacterized to a Traditional IRA had a gain of about 1K (amount recharacterized =6k and Gain =1K) . This also created a 8606 - which was properly completed and filed in 2022 (for the 2021 tax year). The entries on the 2021 8606 were as follows:
Line 1: Non deductible contribution to Traditional IRAs for 2021 - 6k
Line 2: Enter total Basis in Traditional IRAs - 0
Line 3 Add Lines 1 and 2 - 6k
Line 14: Total basis in traditional IRAS for 2021 and earlier years - 6K
Line 15c: Taxable amount - 0
In April of 2022, I converted this traditional IRA to a Roth IRA (full amount was converted and traditional IRA was zeroed out).
In January of 2023, I received two 1099-Rs from the broker both of these are for tax year 2022. One 1099-R captures the recharacterization transaction and has a distribution code of "R". Gross distribution 7K , Taxable amount is "0"
The second 1099-R is for the conversion to Roth. Distribution code is 2 with IRA/SEP/Simple box checked. Remaining details are below:
1 Gross distribution $7,004.96
2a Taxable amount $7,004.96
2b Taxable amount not determined (X)
Total distribution (X)
After I went through all the questions on turbotax it generated an updated 8606 for 2022 which captures the correct basis for last year. Line 14 is "0". In the Conversion section we have:
Line 16 - net amount converted to Roth in 2022: 7005
Line 17 - Basis: 6000
Line 18 - Taxable Amount: 1005
My question: Looks like I will be taxed on the $1005 gain reported when I converted the traditional IRA to a Roth in 2022. This amount is being reflected on my 2022 1040 correctly. However when completing the Q/A screens Turbotax said " It looks like you may need to Amend your 2021 Return since your 1099-R reports earnings on a contribution you made in 2021". I am not sure if this is correct, as the recharacterization was reported in the 2021 year already and the 1099-Rs were both for 2022 (when the conversion happened). Any help appreciated.
