I incorrectly filed an IRA recharacterization on my 2018 tax return. Do I need to amend the return?

[tc51]

Hi,

I contributed to a Traditional IRA in October of 2018.  In January of 2019, I decided that I wanted to put this money into a Roth IRA instead.  I performed a conversion of the funds in the traditional IRA to the Roth IRA (I was under the assumption that I was recharacterizing at the time; however, that was not the case).

I completed my 2018 tax return reporting all my contributions as Roth IRA contributions (including the explanatory statement).  This year (2020), I received a 1099-R from Vanguard that made me aware that I performed a conversion and not a recharacterization.

Because I completed a conversion and not a recharacterization, it seems that I should have reported my 2018 contributions as Traditional contributions and filled out form 8606.  I did not do this.  My tax liability should not change as I did not receive a deduction (since I claimed it as a Roth contribution).  Do I need to amend my 2018 return to change this from a Roth contribution in 2018 to a Traditional non-deductible contribution (with form 8606) in 2018?

This is, of course, affecting my 2019 filing as I do not have the 2018 Form 8606 justifying my basis in the "converted" traditional IRA that Vanguard's 1099-R provides information on.

Thank you in advance.

[macuser_22]

Was a 2018 8606 included with your 2018 tax return with the contribution on  line 1?

You said  "including the explanatory statement" .  Was that in the recharacterization interview?  If so, and a 2018 8606 was included that had the non-delectable Traditional IRA contribution on line 1, then  this might be an error that lead to the correct result anyway.

[tc51]

No, I did not have a Form 8606 in my 2018 tax filing.  I used Turbotax in 2018 and when I filled it out as a recharacterization (again, improperly due to my own error), it generated the explanatory statement which includes:

-Date of the original contribution

-Date of the recharacterization

-The amount recharacterized

-The amount transferred (recharacterization plus earnings or losses)

-Reason for recharacterization

The amount recharacterized is higher than the amount transferred as I had incurred losses since the initial contribution.  My basis in the traditional IRA was higher than the amount that ended up being converted.

In any event, I guess I need to figure out whether just filing a Form 8606 for TY2018 will suffice or if I need to submit an amended return fixing this recharacterization/conversion error along with a Form 8606 in order to get things correct for TY2018 and now TY2019.

I appreciate your response.

[macuser_22]

If you neither have a 2018 8606 form or deducted the Traditional IRA contribution on Schedule 1 line 32 then it would appear that  you only filed an explanation statement about a Traditional IRA to Roth recharacterization that did  not occur.     Because there is no 2019 1099-R (code R) that reports a recharacterization, and it makes no difference to your tax amounts of either year, then just ignore it.   In the (very unlikely) chance that the IRS will every question the explanations statement in error, a simple phone call should settle it.  I doubt that you will ever hear.

[macuser_22]

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@tc51 wrote:

Because I completed a conversion and not a recharacterization, it seems that I should have reported my 2018 contributions as Traditional contributions and filled out form 8606.  I did not do this.  My tax liability should not change as I did not receive a deduction (since I claimed it as a Roth contribution).  Do I need to amend my 2018 return to change this from a Roth contribution in 2018 to a Traditional non-deductible contribution (with form 8606) in 2018?

If the 2018 Traditional IRA contribution was NOT deducted and was a non-deductible contribution then  in order to apply that "basis" to the 2019 conversion, you must file a 2018 8606 for with the non-deductible contribution on line 1,3 and 14.

If there is no other reason to amend 2018 then you  can mail the 8606 by itself.

2018 8606 form:  https://www.irs.gov/pub/irs-prior/f8606--2018.pdf

2018 8606 instructions: https://www.irs.gov/pub/irs-prior/i8606--2018.pdf

[tc51]

The 2018 contribution was filed as a Roth IRA contribution therefore it was not deducted (but technically for the wrong reasons).  For 2019, I received a 1099-R indicating the conversion took place so I am needing the TY2018 8606 basis to justify not having to be taxed on the 1099-R conversion.  It seems like what you have mentioned here should be my course of action:

File a TY2018 Form 8606 indicating my basis in the Traditional IRA.

Thank you for your help.

[macuser_22]

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@tc51 wrote:

The 2018 contribution was filed as a Roth IRA contribution....

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Not actually, since Roth contributions are not reported on a tax return - only Traditional IRA contributions are.  The only thing that could affect a tax return with a Roth contribution would be the addition of a 8880 (Savers Credit) form if you qualified for the credit, but an equal Traditional IRA contribution would add the same form - so no real difference.