Recharacterization of Roth IRA to traditional IRA and subsequent back door (transfer back to Roth)

You will enter the recharacterization when you enter the contribution to the Roth IRA 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 of $3,060 (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $3,060 plus $405 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 get Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2021 and this belongs on the 2021 return. But a 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the 1099-R with code R when you get it in 2023. The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

 

 

 

 

On your 2022 tax return you will enter Form 1099-R for 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 "Your 1099-R Entries" 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 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

 

 

Thank you. Also, what should I do regarding the $3465 that is sitting in my Traditional IRA that I want to transfer to Roth IRA via the back door route.  How will this affect the $405 earnings which has to be taxed? 

 

How will I report that on my 2021 and 2022 tax returns? I would like the transfer the entire amount so that I can have $0 in my traditional to make it clean for my near year's 2022 Back Door Contribution. 

Yes, you can request with your financial institute to convert the amount from your traditional IRA to Roth IRA. The earnings of $405 will be taxable, the rest nontaxable assuming your traditional IRA was empty before you started the recharacterization. Please be aware, since the conversion will happen in 2022 it has to be reported in 2022.

 

 

On your 2021 return, you will enter your recharacterization as mentioned before and make it nondeductible. TurboTax will create Form 8606 to show your basis of $3,060 on line 14. This basis you will enter on your 2022 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" (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 can make your 2022 contribution to the traditional IRA and convert the amount from 2021 and 2022 to the Roth at the same time if you wish.  Then you follow the instructions below to enter the 2022 contribution, the basis from 2021, and the conversion shown on Form 1099-R on your 2022 tax return.

 

To enter the nondeductible contribution to the traditional IRA on your 2022 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 “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contributions before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount.
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a screen saying $0 is deductible).

 

To enter the 1099-R distribution/conversion on your 2022 tax return: 

 

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 "Your 1099-R Entries" 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 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

 

 

If I make my 2022 contribution (planning on contributing $6000)  to the traditional IRA and convert the amount from BOTH 2021 and 2022 to the Roth at the same time, on my 2022 tax return, for #6 and #9:

6. Enter the amount you contributed--> would this be $6000 or $6000+$3060 for both years

9. If you had a basis in the Traditional IRA before then enter the amount--> would this be $3060 which was the amount I contributed for 2021?  

 

 

 

For step 6: You will enter $6,000 as contributed in 2022 on your 2022 tax return next year.

 

For step 9: Yes, the basis from 2021 and prior years, shown on line 14 of 2021 Form 8606, would be $3,060.

I'm in the same situation... My wife contributed $6000 to her Roth IRA in 2022 but we got married late last year and have decided to file jointly. However, our combined MAGI is too high

 

So - we re-characterized her 2022 $6000 Roth contribution (+$178 of earnings) into her Traditional IRA in March of 2023. We subsequently converted those $6000 contributions (+$278 of earnings - it grew a bit more) to her Roth IRA

 

(Note: the original Roth contribution was done in July 2022, but the re-characterization from Roth to Traditional and subsequent Traditional conversion to Roth were done in March 2023).

 

Can you provide guidance on how to fill in forms correctly for 2022?

On your 2022 tax return, you will enter the recharacterization when you enter the contribution to the Roth IRA:

 

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 ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount $6,000
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount of $6,000 (no earnings or losses) on the next screen.
9. 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.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if 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 get Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2022 and this belongs on the 2022 return. But a Form 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the Form 1099-R with code R when you get it in 2024. The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

 

 

Next year on your 2023 tax return you will enter the 2023 Form 1099-R for the conversion and enter the basis from your 2022 Form 8606 line 14:

 

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

Please be aware, that the earnings of $278 will be taxable on your 2023 tax return.

 

@bower-jack 

Thanks, this is helpful! Since I contributed and there were earnings in 2022, wouldn't I need to report this in 2022 vs. 2023?

The recharacterization of the Roth contribution for 20222 will be reported on your 2022 tax return because it was a contribution for 2022. But the conversion will be reported in 2023 since you made the conversion in 2023.

 

Yes I understand - but the earnings happened in 2022. When do I report this?

You don't report the earnings for a recharacterization. They are deemed to have been earned in the traditional IRA since you made the recharacterization. Next year when you report the conversion the earnings will show as taxable on line 4b. All you need to do is enter the conversion with the steps above.

 

@bower-jack 

I'm struggling with the same issue. 

 

In @bower-jack's scenario, would they still be able to max out the backdoor Roth IRA contribution for both Tax year 2022 AND 2023?  Since the $6000 Trad IRA-->Roth IRA conversion happened in 2023 (for the funds originally deposited in the 2022 Roth IRA), would that $6000 amount count toward the 2023 Roth IRA limits?  Or could they be itemized toward your 2022 limits?

 

In other words, can you do you a total of $12,000 Traditional IRA-->Roth IRA conversions in calendar year 2023?  With $6000 applied to tax year 2022 and $6000 applied to tax year 2023?  Or is it too late to do backdoor Roth contribution for tax year 2022?

Please review IRS Pub 590-A

"How Do You Recharacterize a Contribution?" on page 29

 

It will answer all your questions.

 

@dinger104 

@dinger104 

If you recharacterized 2022 contribution successfully, and you recharacterized 2023 contribution successfully,

then you can elect to make those now Traditional IRA contributions non-deductible (if not already forced to).

 

There is no limit on the amount you can convert in the tax year.

Once you convert you cannot undo it.

Found the answer: https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/

 

Looks like you report taxes for the PREVIOUS year (2022) as if you only made a $6000 traditional IRA contribution.  Then in the current tax year (2023), you claim the full $12,000 as a Roth contribution (from the trad-->Roth conversion). 

 

This allows you to invest the max in both years in the event your income goes over the Roth IRA limits and you don't realize til the next year.

 

Patrick