Which year should I report the money get between Roth IRA and traditional IRA?

[SL12345]

Hello,

I accidentally made an over-contribution to Roth in 2021. I converted the over part into Traditional IRA, then converted it back to Roth (back door) in March 2022. 

Now, I received two 1099-R (one for withdrawal from the over-contributed Roth, and another one is for the withdrawal action from a traditional IRA. The numbers are slightly different).

When I fill them out today (Mar 2023) in turbo tax, one of them triggered a message: Your 1009-r reports earning on a contribution you need in 2021. This information needs to go on your 2021 return. 

What exactly do I need to amend for the 2021 return?

[DanaB27]

If you made a recharacterization from Roth to a traditional IRA and received a 2022 Form 1099-R with code R then you can ignore this form but please make sure you entered the recharacterization with the steps below on your 2021 tax return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

You will have the 2021 Form 8606 with the basis in line 14 this will be entered into your 2022 tax return when you enter the conversion:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

If I misunderstood and you actually withdrew the excess Roth contributions plus earnings and have a 2022 Form 1099-R with codes P and J then you will have to report this on your 2021 tax return. Only the earnings will be taxable and subject to the 10% early withdrawal penalty (if you are under 59 1/2). 

Please see How do I amend my federal tax return for a prior year?

[SL12345]

Thanks!

1. No, you didn't misunderstand. I re-characterized all over-contributed Roth IRA + earning A to Traditional IRA then backdoored all of them+ earning B (there is a small earning in 2 days) back. However, I think earning A and earning B are taxable, right? Which form for which year I am supposed to see these numbers?

2. When I do 2022 tax year, It said I have an excess traditional IRA contribution and advised me to withdraw before April. However, right after I re-characterized the over-contributed Roth IRA to Traditional IRA, I converted all of the funds back to Roth in March 2022. The balance of my Traditional IRA is 0 on 12/30/2022. What should I do here? I have nothing to withdraw. 

[DanaB27]

1. Yes, the earnings are taxable when converting to Roth IRA on your 2022 tax return. You can see the calculation on Form 8606 part I and part II. The taxable part on line 18 will be entered on Form 1040 line 4b.

2. Did you make a traditional IRA contribution for 2022? Did you have earned income to make the contribution? Please do not enter the recharacterization of the 2021 contribution on your 2022 tax return. You entered that already on your 2021 return. All you need to do is to make the entries in the retirement section (Form 1099-R for the conversion) and make sure you enter your basis from line 14 of your 2021 Form 8606 when TurboTax asks (in step 7).

[SL12345]

1. I'm using MAC-downloaded TurboTax Premier.  I uploaded my two 1099-R in the Wage& Income section. Should I not do that? You said ignore the one for Roth to Traditional, should I not upload it at all?

2. Then I went to the Deduction & Credit section did the Traditional IRA which it asks me about the basis. Did I do it right?

[DanaB27]

1. Yes, you will upload/enter the 2022 Form 1099-R for the conversion to Roth IRA under Wages & Income and then answer all follow-up questions carefully.

You didn’t need to enter/upload the 2022 Form 1099-R with code R for the recharacterization but it won’t do anything to your return (won’t change anything) therefore you don’t need to delete it.

2. Yes, you can enter the prior year basis either in the IRA contribution section or in the follow-up questions after you have entered your Form 1099-R. If you didn't make a contribution for 2022 then please don't enter a contribution to the traditional IRA and continue to the “Any Nondeductible Contributions to Your IRA?” screen and answer "Yes". Then you are able to enter your prior year basis from the 2021 Form 8606 line 14.