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

[DanaB27]

Thank you for that information. It seems as if you had a gain of $1,203 since you only made a $1,000 contribution in 2020 for 2020 and didn’t have a balance or basis from 2019.  You will have to pay tax on this gain, and it was correct that the tax increased when you entered the outstanding recharacterization amount since the basis from the recharacterization has to be allocated for your 2021 conversion.

Please make sure you enter the $1,624 basis from line 14 of your 2020 Form 8606 in your 2021 tax return.

@dhuynh44
 

[dhuynh44]

@DanaB27 

Hi Dana I was responding to your last post of "$1203 was gains so I would have to pay taxes on it and $1624 would be my basis going forward" but somehow all of our last few posts are gone!!!!!

I just had a couple of more questions for my understanding please.

1.  Where is this $1000 contributed/converted in 2021 for 2020 reported?  It would make sense to be included in the $2203 on my 1099-R for 2020?  My 1099-R for 2021 is $4902.  I made $4080 contributions/converted in 2021 for 2021 + $1000 (2021 for 2020) is greater then $4902?  Also it does not make sense that I would gain $1203 bc as soon as I contribute to traditional I convert to Roth as soon as possible.

2.  The part that asks "How much outstanding recharacterizations?"  Do I enter $1000 (contributed) or $1317 ($1000 contributed + $317 gains)

3.  The end VALUE for 2020 is $0 on my statement but this should not hold true correct?  Line 6 at the moment is $1000 ($1000 recharacterizations).  Should this amount on Line 6 actually be $2317 ($1000 contributed in 2021 + $1317 recharacterized)?

Thank you!!

[DanaB27]

1. If you made the $1,000 contribution in 2021 for 2020 then you could not have converted them in 2020 because the funds weren't in your account in 2020. You might had a loss in 2021 before converting and that's why the contributions are more that the conversion amount?  Otherwise, maybe check the dates of the contributions to make sure we are accounting for everything correctly.

2. You will only enter the $1,000 for the outstanding recharacterization.

3. No, the contribution for 2020 made in 2021 will not be entered on line 6 of Form 8606.

[dhuynh44]

@DanaB27 

thank you!  I probably won’t dive deep into discrepancies (if they exist) on my 1099-R’s, I just want to make sure I enter all the numbers in TurboTax correctly.  

“2. You will only enter the $1,000 for the outstanding recharacterization.”

So this direct answer of $1000 (contributed) for the question above even though the total recharacterized was $1317 ($1000 contributed + $317 gains) is what gets inputted into Line 6 of the 8606?

I have another expert that is saying this amount should be $1317.  Am I missing something? Thank you!

[RobertB4444]

@dhuynh44  @DanaB27 is correct.  Fill out the form as she has instructed and you will be fine.

[dhuynh44]

@RobertB4444 @DanaB27 

You guys have been such a great help.  I did plug the same numbers in and got the same basis as @DanaB27    

I have 1 line that I am confused on.   If I could get another expert opinion that would be great.   

Line 6 according to @DanaB27 @should be $1000, is this number generated when I answer the question “How much outstanding recharacterizatons?”  As background i recharacterized a total of $1317 in 2021 for year 2020, but of the $1317, $1000 is that I actually contributed.  

A tax expert buddy of mine claims Line 6 should be $1317.  Should this number actually be $1000, or $1317? @RobertB4444 

thank you!

[DanaB27]

Line 6 in your case should be $1,000 the recharacterized amount and not the transferred amount of $1,317.

[dhuynh44]

@DanaB27   

Thank you!  I was curious though does the amount on Line 6 come from the question “do you have any outstanding recharacterization?”  + whatever value I have at the end of the year for 2020?

thank you

[DanaB27]

Yes, the amount in line 6 comes from what you are entering on the "Tell Us the Value of Your Traditional IRA" screen, including the value at the end of 2020 and the outstanding recharacterizations.

[dhuynh44]

@DanaB27 

Thanks for the information.  I think I know where I have been confused.  I think this is what I need to input.  As for my example:

$1000 contributed to Roth in 2020

$1317 was recharacterized in 2021 for 2020 ($1000 contributed + $317 gain)

Under "Wages and Income" under Outstanding Recharacterizations I will put $1000

Under "Deductions and Credits" under "Enter your Roth IRA contributions" for 2020, I will enter $1000

On the next screen it asks "Tell Us How Much You Transferred of this $1000" I will put $1317

Is this correct?

Also under the "more information" or "examples" tab it says I should to enter my 1099-R from 2021 for tax year 2020 showing my recharacterization, however you stated I do not have to.  Do I need to put this 1099-R on my amended 2020 return even though it doesn't get reported? 

Thank you!

[DanaB27]

Yes, under "Wages and Income" under Outstanding Recharacterizations you will put $1000.

Yes, under "Deductions and Credits" under "Enter your Roth IRA contributions" for 2020,  you will enter $1000.

No, on the next screen "Tell Us How Much You Transferred of this $1000" you will have to enter $1,000. You will enter the gain on the explanation statement: The original $1,000 plus $317 earnings were recharacterized.

No, you do not need to enter the 2021 Form 1099-R with code R because it won’t do anything to your return. It won't make any changes to your return.  Therefore, you can ignore it.

@dhuynh44

[dhuynh44]

@DanaB27 

Thanks for the quick response.  I am not trying to challenge any of the information you are giving, just simply trying to understand these questions, they seem a little confusing (to me at least).  The quotes below are from the help and explanations sections:

"2. An annual contribution to a Roth IRA can be recharacterized as a traditional IRA contribution. The recharacterization must be for the same year the contribution was made. Also included in the transaction is any earnings attributable to the contribution while it was in the Roth IRA. The total of your contribution and the earnings attributable to your contribution is referred to as the amount "transferred."

"In a recharacterization, there is an amount recharacterized and an amount transferred. It is important to understand the difference. The amount recharacterized represents the original amount contributed and does not include any earnings or losses incurred after the original contribution. The amount transferred is the amount recharacterized plus any earnings or minus any losses incurred after the original contribution. Refer to these examples."

The question "Tell Us How Much You Transferred of this $1000" is confusing because it is using the word transferred.  So when you saying I should enter $1000 here, is there anywhere on these questions or 1098 that I actually input the $1317 ($1000 contributed + $317 gains)?

Thank you

[DanaB27]

I agree, the wording might not be best in the title. But next to the field it states "Amount switched from Roth to traditional IRA" therefore you only enter the $1,000. 

You only will enter the gain on the explanation statement like mentioned above. 

The gain is treated as if earned in the traditional IRA since you are recharacterizing the contribution. Therefore, when you take a distribution/make a conversion this gain will be taxable.

[dhuynh44]

@DanaB27 

Thank you.  If you don’t mind, Line 8 on the 8606 says “the amount I converted in 2020 from traditional IRA”. 

This would be from my 1099-R for traditional IRA with check mark X under IRA/SIMPLE/SEP and be $2303 in box 1?  Thanks 

[DanaB27]

Yes, that is correct. The $2,303 amount converted from your Form 1099-R for traditional IRA with checkmark X under IRA/SIMPLE/SEP will be on line 8 of Form 8606.