Please help. Converted non-deductible Traditional to Roth IRA but stuck with filing

[dhuynh44]

Would anyone have any idea why the contributions on form 5498 would be different than what I actually contributed?  Thanks 

[DianeW777]

TurboTax does have a great article about the Form 5498 which may be helpful.  You can click here to review the article.

[dhuynh44]

@DianeW777 

@DanaB27 

Hi, I've started amending my 2020 return.  I've done all the steps above and listed the numbers as suggested.  However, after inputting the recharacterizations I have ended up owing $213 for both my wife and I.  Does this make any sense that I would have to owe money even though I have not taken out any money but just converted?  Because of this I have decided to revisit my 1099-R inputs for year 2020.

For my traditional 1099-R the amount was $2203 and taxable amount was $2203 with box 7 = code 2 and IRA/SEP/SIMPLE checked.  When it asks what did I do with this money, I converted it to Roth.

Do I choose "I moved money to another retirement account" and "I did a combination of rolling over, converting or cashing out money?"  And this amount would be the whole $2203 correct?  Thank you

[DanaB27]

Yes, you will choose "I did a combination of rolling over, converting or cashing out money?" and then enter the $2,203" as converted to Roth.

If you had earnings, then these will be taxable during a conversion.

For 2020, you only entered the contribution amount as recharacterized (without the earnings)? Just adding the recharacterization shouldn't result in owing taxes.

@dhuynh44

[dhuynh44]

@DanaB27 

When I converted from traditional to Roth, I originally contributed $2000 and did a conversion right away as to not incur any gains.  I’m assuming the $2203 is bc $203 is from gains in the Roth?  However as I stated I converted right away so do I still put $2203 total converted?  

On another note, when I recharacterized $1000 that I contributed to Roth back to traditional, it ended up gaining $317 so the total I recharacterized back to traditional was $1317.  However, when it asks “how much of the $1000 contributed to Roth did I recharacterize to traditional, do I put $1000 (what I contributed). 

Finally, when I add my 1099-R from 2021 recharacterization to the amended 2020, do I enter it as listed above under “deductions and credits” or do I add it to “wages and income” under “add a 1099-R?  

thank you!

[dhuynh44]

When I am amending 2020, after I looked at all the 1099-R for year 2020, there’s a part at the end that asks for the value of my traditional at the end of year 2020.   On my 5498 it says $0.  However there’s a question under that that says enter any outstanding 2020 rollovers and recharacterizations that we’re not completed until 2021.  I did a recharacterization of $1000 ($1000 contributed + $317 gains) in 2021.  Do I enter any of the information in the question?

Or is it taken care of when I entered this under “deductions and  credits” as instructed.  Thanks 

[DanaB27]

Yes, you will enter $2,203 as converted. The $203 seems to be a gain.

Yes, when you enter the recharacterization you will only enter the contributed $1,000 when TurboTax asks “how much of the $1000 contributed to Roth did you recharacterize to traditional”.

You do not need to enter the form 1099-R with code R for the recharacterization. A 1099-R with code R will do nothing to your return. You can only report it as mentioned in my first reply. Therefore, you can ignore the 1099-R with code R.

Yes, since you had an outstanding recharacterization you will enter the $1,000 under “Outstanding Recharacterizations”.

@dhuynh44

[dhuynh44]

@DanaB27 

"Yes, since you had an outstanding recharacterization you will enter the $1,000 under “Outstanding Recharacterizations”."

Hi @DanaB27 , I just put $1000 under "Oustanding Recharacterizations."  This $1000 was contributed to Roth in 2020, but recharacterized March of 2021.  It increased my income and now I owe more in taxes.

The value ($ amount) in my traditional at end of 2020 was $0 according to my end of year statement.  When I add this $1000 to "Outstanding Recharacterizations" on Line 6 it now says my value is $1000.  Is this supposed to be correct?  Why would I pay taxes on a recharacterization?

Thank you

[DanaB27]

No, you do not pay taxes on the recharacterization but Form 8606 how the basis is allocated might change. It seems as if you had earnings when you made the conversion in 2020.

To clarify, how much did you convert in 2020? What are the entries on lines 1, 2, 5, 6, and 14 of form 8606? 

@dhuynh44

[dhuynh44]

For myself, on my 1099-R it says I converted $2203 (not including the $1000 recharacterization).  I contributed $2000 directly from my bank and converted as soon as possible as not to incur taxes so I am not sure why the amount is $2203.

Line 1 - $3000

Line 2 - $0

Line 5 - $2000

Line 6 - $1000

Line 14 - $1624

If I could ask 1 more question, at the part where it asks "Tell Us the Value of all of your Traditional IRA accounts".. on my form 5498 it says $0.  However there are 2 followup questions that under that that ask:

"Include any IRA contributions you made or will make in 2021 for 2020"

"Include any IRA distributions you made in 2019"

Do I put $1000 here, as I made a $1000 contribution in 2021 for 2020?

And for my knowledge going forward for 2021, what does "Include any IRA distributions you made in 2019" actually mean?  Would distributions mean money I actually pull out or something else?

Thank you

[DanaB27]

To recap, you made

• a recharacterization in 2021 of $1,000 for 2020,
• a $1,000 contribution in 2020 for 2020, and
• a $1,000 contribution in 2021 for 2020.

So technically you had only $1,000 in 2020 to convert because the rest wasn't put in the traditional IRA until 2021 for 2020. Now, if the $1,203 also converted in 2020 weren't earnings where did they come from? Did you have a balance in the traditional IRA before? Did you have a basis from 2019 (nondeductible contribution for 2019)?

I want to make sure we are not missing an important detail here and you pay unnecessary taxes.

@dhuynh44

[dhuynh44]

@DanaB27 

Yes the above is true.  I made the 2021 $1000 contribution 1/4/21 and converted it on 1/7/21, and did not receive an updated 1099-R.  I asked another tax expert and they stated the $1000 contributed in 2021 was part of that $2203 converted on my 1099-R.  I did not contribute anything in 2019.  Thank you

[DanaB27]

To clarify, what year is on the Form 1099-R with the amount of $2,203? And what is the code in box 7?

You should have received a 2021 Form 1099-R for the amount converted on 1/7/2021 (it might be together with any other amount you converted in 2021).

@dhuynh44 

[DanaB27]

To clarify, what year is on the Form 1099-R with the amount of $2,203? And what is the code in box 7?

You should have received a 2021 Form 1099-R for the amount converted on 1/7/2021 (it might be together with any other amount you converted in 2021).

[dhuynh44]

@DanaB27 

Thank you.  The 1099-R with amount $2203 is for year 2020.  The code in box 7 is 2 with IRA/SEP/SIMPLE checked "X"

I did receive form 1099-R for 2021 in the amount of $4902.01 with box 7 also 2 and IRA/SEP/SIMPLE checked "X".  I did also contribute $4080 to traditional in 2021 and another $1920 in 2022 for 2021.

What does this change?  Thank you!