How to handle Roth IRA recharacterization to Traditonal IRA, and then Traditional to Backdoor Roth

[arowzee]

Hi all -

I''m unsure of how to handle the following situation on my taxes. For the 2018 tax year, I contributed $3000 to my Roth in April 2018 and the remaining $2500 in January 2019. When completing my 2018 taxes in March/April 2019, I realized I was slightly over the max contribution limit (but not fully phased out). As such, I recharacterized 2,613.34 on 4/1/19 to a Traditional IRA and converted 2,659.82 (original recharacterization + earnings) back to my Roth account about 10 days later.

I received two 2019 Form 1099-R's; one for the Roth and another for the Traditional. The information from both is as follows:

Traditional IRA 1099-R:

• Gross Distribution (Box 1): 2659.83
• Taxable Amount (Box 2a): 2659.83
• Taxable Amount Not Determined (Box 2b): X
• Total Distribution (also Box 2b): X
• Federal Income Tax Withheld (Box 4): 0
• Distribution Code (Box 7): 02
• IRA/SEP/SIMPLE: X
• State Tax Witheld (Box 12): 0
• All other boxes are blank

Roth IRA 1099-R:

• Gross Distribution (Box 1): 2,613.35
• Taxable Amount (Box 2a): 0
• Federal Income Tax Withheld (Box 4): 0
• Distribution Code (Box 7): R
• State Tax Witheld (Box 12): 0
• All other boxes are blank

How exactly do I handle reporting this properly?

Side question: when entering the Roth 1099-R, TurboTax asks me to "look at the year on your Form 1099-R. Does it show 2019 or 2020?" to which I've answered 2019 as the form is titled "2019 Form 1099-R". Is this correct? Or do I select 2020 as this was the year in which the recharacterizations and conversions were made? When I select 2019, TurboTax tells me I need to file an amended return for 2018.

[macuser_22 · Accepted solution]

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.

Enter a 1099-R here:

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).

OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

You will be asked of you had and tracked non-deductible contributions - say yes. The enter the amount from the last filed 8606 form line 14 if it did not transfer. Then enter the total value of any Traditional, SEP and SIMPLE IRA accounts that existed on December 31, 2019.

That will produce a new 8606 form with the taxable amount calculated on lines 6-15 and the remaining carry-forward basis on line 14.

NOTE: If there is an * next to line 15 then 6-15 will be blank and the calculations will be on the "Taxable IRA Distributions worksheet instead.

[arowzee]

Thanks for the reply and information. I took a look at my 2018 return and found a potential mistake. I filed an 8606 for this transaction but think I did so incorrectly. On my 2018 8606 form, I have the following:

• Line 1: 2500 (this was the amount of the original Roth contribution that was recharacterized to Traditional + 113.34 in earnings)
• Line 2: 0
• Line 3: 2500
• Line 14: 2500
• All other lines are blank

I also added a 1040 statement on my 2018 return for line 4a of the following:

• Date of the Original Contribution: 1/30/2019
• Date of the Recharacterization: 4/1/2019
• The Amount Recharacterized: $2500.
• The Amount Transferred (Recharacterization plus earnings or losses): $2613.34
• Reason for the Recharacterization: Excess contribution due to unexpected income

Correct me if I am wrong, but I believe I need to amend my 2018 8606 to include 2500 on line 4 (as the recharacterized amount would be my 2500 contribution from 1/30/2019), and then attach the 1099-R from my Roth (distribution code R) to the amended return? If that's the case, do I need to include this 1099-R anywhere in my 2019 taxes, or do I only need the other one (with distribution code 02)?