Hi Turbo Tax Community,
This year while filing taxes for year 2021, I received notice that I overcontributed to my Roth IRA (contributed back in 5/2021) by $3060 from the $6000 that I had put in because of my unexpected increase in MAGI. I went ahead and did a recharacterization in 2/2022 for the amount of $3060 and what actually went into my Traditional IRA was $3465 due to gains from the invested Roth IRA funds. Am I able to do a back door transfer of the entire $3465? I know I will have to pay taxes on the additional gains. How do I go about filling out the 8606 for 2021 and for 2022? It seems a bit messy since my contribution occurred in 2021 but my transfer occurred in 2022. I want the back door transfer of $3465 to be part of my 2021 Roth contribution and would like the balance of my Traditional IRA account to be $0 for my future 2022 back door conversion just to keep it clean. Please advice how I should be going about filling out my return on TurboTax Premier. I know I will receive a 1099-R for 2022 due to the recharacterization. Will I be reporting that on my 2022 tax return?
Thank you all so much! I appreciate any input.
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You will enter the recharacterization when you enter the contribution to the Roth IRA on your 2021 tax return:
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:
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.
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:
To enter the 1099-R distribution/conversion on your 2022 tax return:
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:
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:
Please be aware, that the earnings of $278 will be taxable on your 2023 tax return.
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.
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.
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