Prior year Roth Recharacterization and possible amendment

[patelrpn]

Good Afternoon!

I have an issue with recharacteriztion reported in wrong year and I need advice how to correct this.

In 2022 - Roth Contribution  - $6000. Filed taxes without any recharacterization.

In 2023 - Roth Contribution  - $6500.

In February Recharacteried - (I thought I had rechacteried 2023 but the custodian was recharacterizing 2022.)

In 2024 I have received 2 1099R - one for rechacteriztion  with code R in box 7. I completed taxes for 2023 with using the second 1099 for baking door conversion.

In 2024 - Roth Contribution - $7,000.

The custodian made a rechacterization of 2023 contribution of $6500 ($8,258).

I initiated a recharacterization of 2024 contribution of $7,000.

Now I have received 2 1099R for tax year 2024. One for $8,258) with code R in box 7 and another one for backdoor conversion of $15,220 ($8,220 + $7,000).

How do I go back to correct my prior year tax filing or do I need to?

Should I be reporting 1099R with code R?

Should I just need to revise 2023 with statement to show the original 2022 contribution?

Please guide me so that I can move forward with current year tax.

Thank you and appreciate any help I can get!

Ramesh

[DanaB27]

No, you don't need to enter Form 1099-R with code R. Form 1099-R with code R will do nothing to your return. You can only report it as mentioned below. Therefore, you can ignore the Form 1099-R with code R.

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 “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. 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.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" since you are doing a backdoor Roth.  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.

If you didn't report the recharacterizations on your 2022 and 2023 returns with the steps above then you will need to amend your 2022 and 2023 tax returns. Please see  How do I amend my federal tax return for a prior year?  TurboTax will create a 2022 and 2023 Form 8606 when you make the traditional IRA contribution nondeductible.

You will have to start with 2022 and carry the basis on line 14 of the 2022 Form 8606 to 2023. TurboTax will ask during the contribution interview and after entering all 1099-Rs: “Any Nondeductible Contributions to Your IRA?” select “Yes” since you had a nondeductible contribution in 2022 because of the recharacterization and enter the basis from your 2022 Form 8606 line 14.  This carried over basis will show up on line 2 of your 2023 Form 8606. The basis on line 14 of your 2023 Form 8606 will have to be entered on your 2024 tax return.

 

[patelrpn]

Hi Dana B27,

Thank you for your advice and step by step directions but still have a question -

I can ignore the 1099R with code R received in 2023 for Roth Recharaterization  but do I need to amend 2022 return since I have received in 2023 1099R with code 2 in box 7 for Traditional to Roth conversion?

If I amend 2022 then do I ignore the Roth conversion  1099 in 2023?

Please guide me so that I can move forward.

Thanks again,

Ramesh

[DanaB27]

You only need to amend your 2022 return if you didn't report the recharacterization with the steps I mentioned previously. Check if you have a 2022 Form 8606 on your 2022 tax return. If not then you need need to amend your 2022 return to add the recharacterization and make it nondeductible.

No, the 2023 Form 1099-R with code 2 belongs on your 2023 tax return and you need to report the Roth conversion you made in 2023. If your basis changed on the 2022 Form 8606 line 14 this will have to be entered on line 2 of the 2023 Form 8606. Therefore, you will still need to amend your 2023 tax return.

[patelrpn]

Hi DanaB27!

Thanks again for the clarification.

I have one question - for recharacterization - I contributed $6000 but due to market it became $5,501, should I use recharacterized amount - 6000 (per your explanation-no earning/loss)?

Thank you much for the guidance.

Ramesh

[DanaB27 · Accepted solution]

You will enter $6,000 as recharacterized (step 8 in my previous instructions).  For the explanation statement you will stated that the original $6,000 minus $499 loss were recharacterized.

@patelrpn 

[patelrpn]

Thank you much!

[patelrpn]

Hi DanaB27!

Can I not submit the 2022 and 2023 amendment electronically?

Please advise.

Thanks,

Ramesh

[JohnB5677]

No, TurboTax does not support E-File of 2022 and 2023 amended returns at this time.

See TurboTax article Can I e-file my federal Form 1040-X amended return?