How to report late recharacterization and backdoor in 2022 for 2021

[rubywu19861986]

Please advise what tax form to file and how, and here're my activities timeline: current date 8.26.2022

Question 1:

3.28.2022 contributed $6000 to 2021 Roth

Tax filed 4.3.2022 using turbox tax online

6.23.2022 realized not quality for contributing 2021 Roth, Thus recharacterize the $5500 ($500 loss) to Traditional IRA 2021 (new opened IRA account, no previous IRA account).

6.25.2022 Converted $5500 in Traditional IRA to Roth (backdoor)

Need to file 2021 8606? Can i do it using turbo online? Do I need to amend 2021 tax report? I have not received 1099R (assuming that will come in 1.2023).

Question 2:

4.11.2022 contributed $6000 to 2022 Roth

6.23.2022 again not qualify to contribute, so recharacterized $5500 ($500 loss) to the Traditional IRA account 2022

6.25.2022 Converted to Roth.

any tax form need to file currently in 2022? everything 8606 and 1099R to be taken cared in 2023?

Thanks so much!

[dmertz]

First, you recharacterized $6,000, not $5,500.  $5,500 was the loss-adjusted amount transferred to the traditional IRA, not the amount recharacterized.

Q1:  The resulting $6,000 traditional IRA contribution is reportable either as deductible on 2021 Schedule 1 line 20 (only if you are permitted to make a deductible traditional IRA contribution) or as nondeductible on 2021 Form 8606.  Your 2021 tax return also needs to include an explanation statement describing the recharacterization, particularly that the amount transferred to the traditional IRA was less than that amount recharacterized due to investment losses.  If you already filed your 2021 tax return you'll need to amend it;  you can provide your explanation on Form 1040-X.

Q2:   The Roth conversion that occurred in 2022 will be reportable on your 2022 tax return on Form 8606 with the resulting taxable amount propagating to Form 1040 line 4b.  Any amount appearing on your 2021 Form 8606 line 14 ($6,000 if the entire contribution was treated as nondeductible) will appear on line 2 of your 2022 Form 8606.  You'll receive the 2022 Form 1099-R (code 2 or code 7 depending on your age) near the end of January 2023.

You'll also receive a code R 2022 Form 1099-R for the recharacterization.  You can ignore that form because the explanation statement that you provide with your 2021 tax return will have already provided the necessary information.

[rubywu19861986]

Thanks for your advice. Please suggest whether i understand this right. Thanks so much!

First, both $6000 are non-deductible money. I opened the Traditional IRA really just for the recharacterization and conversion, so there's no deductible money in this IRA account. Do I still need to do 2021 tax amendment? (Yes, I already filed Tax for 2021 and didn't realize i was not qualified for Roth contribution in 4.2022). I looked at 1040-X and did not see any part i can change as both 6000 are post-tax money. 

Second, For 2021 8606, please review:

Part 1:

line 1: $6000 ( not $5500?)

line 2: 0

line 3: 6000, No (it says "in 2021, did you take a distribution from traditional, sep, or simple iras, or make a roth IRA conversion", so i should choose no? because my conversion happed in 2022 although it is for 2021 Roth-IRA back-Roth).

For part 2: if i understand this right, it is for the conversion happened in 2021, so i'm not the case, i should leave it blank. 

and I assume above is what i need to do tax wise and the rest is for tax report in 2023 which i should do 1040 plus 8606 (line 2 will carry the 6000 basis from 2021 and line 3: choose yes; For part 2: line 16: i should do $12000, since i did 2 conversions in 2022 although it's for 2021 and 2022 roth-ira-backdoor roth).

Am I correct above? Thanks so much!

[dmertz]

Yes, you must file 2021 Form 8606 Part I to reported the nondeductible traditional IRA contribution.  I would file this with Form 1040-X to explicitly show that there are no changes to income or deductions and to use the explanation space to describe the recharacterization.

Correct, you would say No because you made no distribution that would otherwise be reportable on the 2021 Form 8606.

Correct, Part II of your 2021 Form 8606 will be blank because you did no Roth conversion in 2021.  It must appear on your 2022 Form 8606 Part II.

I interpret your last question as indicating that you also made a nondeductible traditional IRA contribution for 2022 and that you also converted that to Roth in 2022.  You'll say Yes, you made nondeductible contributions for years prior to 2022 and you'll enter or confirm (if you begin your 2022 tax return by transferring in the amended 2021 tax return file) that TurboTax shows the $6,000 of basis carried into 2022 from 2021.  Yes, line 16 will show $12,000;  Assuming that you used the same traditional IRA account, you'll receive a single 2022 Form 1099-R for the $12,000 distribution from the traditional IRA and converted to Roth.

[rubywu19861986]

Thanks for your quick reply.

Do I need to write "Filed pursuant to section 301.9100-2" on top of the 1040 amendment?

Also Can I use turbo tax online to do the 2021 8606 and 1040 amendment (just a statement since it's all nondeductible contributions activities)? I had already filed my 2021 tax online using turbo. If i can't do online, do i have to fill in all the income deducctions, tax liability, payments, etc information on 1040 X or just fill the name information and go to 2nd page to do the part 3 expalnation of changes and sign. 

Also regarding to your first replay to Q2:  The Roth conversion that occurred in 2022 will be reportable on your 2022 tax return on Form 8606 with the resulting taxable amount propagating to Form 1040 line 4b.  ----Do you mean it will automatically show as taxable $ on 1040 4b line even i plan to do the 2021 8606 and 1040 amendment now? all the recharacterization and conversions are post tax contributions. 

Thanks

[fanfare]

When you file Form 1040-X on paper and no dollar amounts are changing,  you can leave Lines 1-23 EMPTY.

If you use TurboTax to e-File Form 1040-X  (current tax season prior to Oct 15), TurboTax will send your entire tax return again to the IRS.

@rubywu19861986 

[rubywu19861986]

Thanks. I had already had the 2021 tax refund. So sounds like it's easier if i just mail in the 2021 8606 and 1040x. 

[rubywu19861986]

I recheck on detail $ for the recharacterization and conversions, Can you please review i'm doing it right on my 2021 8606 and 2022 8606.

3.28.2022 contributed $6000 for 2021 Roth

6.22.2022 recharacterized all to Traditional IRA (new account, only nondeductible), however the there's loss and the real value was $5350.

6.23.2022 converted all 2021 Tradition IRA to 2021 Roth. now the value changed again while sit in IRA for one day. and the real value was $5380. 

4.11.2022 contributed $6000 for 2022 Roth

6.23.2022 recharacterized all of the 2022 roth to 2022 Traditional IRA, however the real transaction was $5400 (loss happened)

6.24.2022 converted all 2022 Traditional to 2022 Roth, the real value was $5500.

For 2021 8606 seems easy. Line 1: 6000. line 2: 0. Line 3: NO. So line 14:6000.

For 2022 8606 Line 1: 6000. line 2: 6000 (2021 basis). line 3: 12000, yes, How about line 8 (the net amount you converted from Traditional to Roth), is this means i need to use the numbers: 5380+5400=10780?. Then this will make line 14 becomes : (12000-10780=220) which i in reality emptied out all Traditional IRA, nothing left there by the end of 2022. 

Can you offer advice? Thanks so much

[dmertz · Accepted solution]

Correct.  Note that TurboTax will zero out your basis carryforward if you have a zero balance in traditional IRAs at year end.  This made some sense when TurboTax automatically created a miscellaneous deduction subject to the 2%-of-AGI floor for unrecoverable basis, but with such miscellaneous deductions suspended until 2026, it's not clear that TurboTax should zero out the carryforward.  Also, it's not clear that such basis is truly unrecoverable since it possible for you to make future traditional IRA contributions.  Under these circumstances, I generally suggest leaving a small amount in traditional IRAs to guarantee preservation of the carryforward and avoid any question as to whether the basis zeros out or not.  However, it's too late for that for 2022 unless you have funds in a qualified plan from which you can do a small rollover to a traditional IRA.

[rubywu19861986]

Thanks. Just to make sure my 2022 8606 filings i listed above are all correct? I know you said correct, but I doubt myself so many times as this is way beyond my knowledge. I do plan to continue contribute to Traditional IRA each year and back door Roth all when this is all legal. I never see 1099 before and as you described I will review it next year. Are they using my real conversion $ or recharacterizariom $ or my contribution $ (original 6000, 6000)? 

[fanfare]

you should write down on paper what you did and compare that to the (correct) instructions given above.

Then you will have no doubt.

A written explanation of what you did is called for by the IRS, anyway.

Include dates and amounts.

@rubywu19861986 

[rubywu19861986]

Thanks for the advice. Yes, I pulled out all the transaction info from vanguard to describe the contribution, recharacterization and conversion activity on 1040 X explanation. What I’m confusing is for 2022 8606 next year. The line 8 saying the net amount which will be less than $12000 since there’re loss while I recharacterize and conversion (a little gain here but still less than original contribution) . So I will end up having a $220 basis. But in reality, I had already emptied out my Traditional IRA. 

[fanfare]

" I will end up having a $220 basis."

that's the unrecoverable basis mentioned above.

You don't have to explain that.

[rubywu19861986]

Thank you very much. 

[rubywu19861986]

Thank you very much.