Recharacterized 2020 Roth IRA contribution in 2021 and backdoor converted in 2021, two 1099-R received in 2022

[vasanthmp]

I contributed $6000 to Roth IRA in 2020. In May 2021, I realized I am not eligible for Roth IRA due to MAGI limits.

In May, 2021 I recharacterized $6000 to Traditional IRA. The recharacterized amount was $6845 due to gains.
Then I did traditional IRA to Roth IRA conversation in May 2021 of $6784.

I am filing taxes for 2021 now. I received two 1099-R.
1. Roth recharacterization of $6845 to Traditional IRA
2. Traditional IRA to Roth IRA conversion of $6784

For tax year 2020, I filed 8606 with total basis for $6000, so I guess I can ignore 1099-R for Roth recharacterization of $6845 to Traditional IRA.

For 2021 tax,  after following these instructions https://ttlc.intuit.com/community/entering-importing/help/how-do-i-enter-a-backdoor-roth-ira-convers.... I still don't see $784 earnings reported in 4b (Taxable IRA distributions) of Form 1040. What am I missing?

[DanaB27]

Yes, you can ignore Form 1099-R with code R since you reported the recharacterization on your 2020 tax return.

What amount does it show on line 4b of Form 1040? Did you make another contribution for 2021? You entered the $6,000 basis from your 2020 Form 8606 line 14 (if it wasn't carried over) during the interview?

To enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2020 Form 8606 line 14 (if you had a basis in the prior year)
11. 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 warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[vasanthmp]

Yes I made $2250 contribution for year 2021. 

• Here is the exact timeline of events, 
• I contributed $6000 to Roth IRA in 2020.
• In May 2021, I realized I am not eligible for Roth IRA due to MAGI limits. In May, 2021 I recharacterized $6000 to Traditional IRA. The recharacterized amount was $6845 due to gains.Then I did traditional IRA to Roth IRA converstion in May 2021 of $6784.
• I am filing taxes for 2021 now. I received two 1099-R.
  1. Roth recharacterization of $6845 to Traditional IRA
  2. Traditional IRA to Roth IRA conversion of $6784
• For tax year 2020, I filed 8606 with total basis for $6000, so I guess I can ignore 1099-R for Roth recharacterization of $6845 to Traditional IRA.
• For 2021 tax returns, my Form 8606 looks as below.

2021 Form 8606
Line 1 2250 // The $2250 in Line 1 is the Roth IRA 2021 contributions made between January 1, 2021, through April 18, 2021.
Line 2 6000 // Basis from 2020 Form 8606
Line 3 8250
Line 5 8250
Line 13 6784
Line 14 1466
Line 15c 0
Line 16 6784
Line 17 6784
Line 18 0

• Recharacterized $2250 of 2021 Roth contributions to traditional IRA and converted back to Roth this week (April 2022).

I think $2250 in line 1 increases the allowed available basis to $8250 in 2021 Form 8606. That is why I dont see $784 in 4b (Taxable IRA distributions)of 2021 Form 1040 So, If I understand correctly,
1. I will receive 1099-R for $2250 roth conversion later, and I will use it in tax returns of 2022.
2. $784 will be taxed in 2022 tax return, since my 2021 remaining basis is $1466 (Line 14 of 2021 Form 8606) instead of $2250.

Correct me if I understanding is wrong.

[DanaB27]

To clarify, did you make a Roth contribution or nondeductible traditional IRA contribution for 2021? Only nondeductible traditional IRA contributions are listed on line 1 of Form 8606. You made this $2,250 contribution for 2021 in 2021, correct? Please make sure you enter your value of all traditional, SEP, SIMPLE IRAs correctly on December 31, 2021. 

Yes, if you converted the $2,250 in 2022 then you will receive a 2022 Form 1099-R and this goes on your 2022 tax return.

[vasanthmp]

You made this $2,250 contribution for 2021 in 2021, correct?

Ans: I made the $2250 Roth IRA contribution for 2021 in 2021. I recharacterized the $2250 Roth IRA contribution to Traditional IRA on April, 05, 2022.

[DanaB27]

Thank you for the clarification. You will have to enter the outstanding recharacterization of $2,250 on the “Tell Us the Value of Your Traditional IRA” screen. This will be added to the value you entered for the value of all traditional, SEP, SIMPLE IRAs on December 31, 2021, on line 6 of Form 8606 (unless TurboTax uses the “Taxable IRA Distribution Worksheet” to calculate the nontaxable part.)

@vasanthmp