Roth recharacterization

Forum|Forum|5 years ago
March 31, 2021
1 reply
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I realize that there have been similar posts but would appreciate any insight.

Situation:

In 2019 my daughter contributed to her Roth IRA. After doing an earning check we realized she had overcontributed due to a year end bonus.

We contacted the Roth administrator (Fidelity). On 4/15/2020 they recharacterized the excess contributions from a Roth IRA to a standard IRA.

This was reported on the 2019 tax filing with the following explanation:

Recharacterization Explanation

Date of the Original Contribution: 8/1/2019

Date of the Recharacterization: 4/15/2020

The Amount Recharacterized: $2227.60.

The Amount Transferred (Recharacterization plus earnings or losses): $2219.69

Reason for the Recharacterization: Excess contribution

This year she received a 1099-R for the recharacterization as if it were the 2020 tax year.

Fidelity provided

1099-R showing a recharacterization (code R) for 2,209.39 with a 2020 form date.

5498 Regular IRA contribution for $2,209.39 with a 2020 date.

Is Fidelity classifying the recharacterization as a 2020 tax event versus a 2019 one?

My question is, given this mess, how do we report this in TT?

Do we need to file an amended return for 2019?

If not, how do I reflect this in the 2020 filing?

Best answer by DanaB27

Yes, you can ignore the 2020 1099-R with the code R since you have already reported the the recharacterization correctly on your 2019 return.

A 2020 1099-R belongs on your 2019 tax return. But a 1099-R with code R will do nothing to your return. You can only report the recharacterization as DianeW777 mentioned in the IRA contribution section by answering yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

DianeW777

Level 15

The following concurs with what should be done on your tax filing from Fidelity. For a recharacterization done in 2020 you will should have a 2020 1099-R to report it. A 2020 1099-R with a Code R means a recharacterized in 2020 for a 2019 contribution. A 2020 date does not indicate it was a 2020 contribution, but you should check with Fidelity to make sure they marked it as a 2019 contribution, if you do not see this clearly on the Form 5498.

The proper way to report the recharacterization and earnings which is to enter the 2020 IRA contribution in the IRA contribution interview section then, answer yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount of the original Roth contribution must be entered - not any earnings or losses. TurboTax will ask for an explanation statement where it should be stated that the original dollar amount plus earnings (or loss) were recharacterized..

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharacterized account.

This method allows for you to attach the proper line 15a explanation statement for a code R 1099-R.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction depending on your modified adjusted gross income (MAGI).

Form 5498 is for informational purposes only and is not used on your personal return. Since the 2019 return was prepared correctly there is nothing to do on that return at this time.

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emma8956Author

Level 2

Thanks DianeW777. I guess I'm still confused.

I saw this advice in another thread

"Next year (2018) when you receive a 2017 1099-R with a code "R" in box 7 reporting this, you can ignore it since you would just have to amend 2016 and report it the exact same way - the 1099-R only informs the IRS of the recharacterization".

This seems to mimic our situation in that the 1099-R is for the recharacterization that was done for a 2019 contribution. If I go through TT and enter the 1099-R it then prompts for an explanation which was already provided in the 2019 tax filing. If I do it again here, the implication is this is for a 2020 event - seemingly doing it twice.

Compounding the situation is that another recharacterization for the 2020 income (even though the contribution was reduced) is pending.