Roth conversion plus recharacterization on 8606

[DanaB27]

1. You can enter the basis either when you enter the contribution steps 9 and 10 or when you enter your Form 1099-R (steps 11 and 12).

2. You can ignore Form 1099-R with code R for the recharacterization since you have reported it already on your 2020 tax return.

3. Please follow the steps below the report the nondeductible contribution and conversion.

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 of $6,000
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” since you had nondeductible contributions before this tax year
10. Enter the basis of $4,093 from line 14 of 2020 Form 8606
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 distribution/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?"
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.

@goyal_raj

[goyal_raj]

Thanks DanaB27.

I entered the non deductible contribution to the traditional IRA as you suggested and also entered the remaining basis of 4093 as per step 10 that you suggested.

However, my 8606 did not generate any new taxable amount. I was expecting that I would have to pay tax on the full amount of 5590 (deductible IRA contribution for 2018 plus income) that I converted to Roth in 2020. Or atleast add something to the taxable amount like it did last year where it added 3683 on a proportionate basis.

How do i make sure that I pay tax on the remaining amount that I converted? Any calculation sheet to look at?

My current 8606 says that my basis as of 2020 is 10094- Row 14 (6000 from 2021 non deductible contribution and 4093 from last year).

For the  1099-R distribution/conversion, i have some questions on the steps: 
Which 1099-R number do i have to fill? 2021 or 2020?
2021 1099-R traditional IRA statement has a total of 13481 as distribution and taxable. This has 7481 of the amount that i reconverted to Roth on 03/04/2021.

Should this be taxable?

Thanks,

[DanaB27]

Yes, on your 2021 Form 8606 you will have a basis of $10,093 on line 3 (nondeductible contribution for 2021 and the basis of $4,093 from 2020 line 14 of 2020 Form 8606).

You will enter the 2021 Form 1099-R with $13,481 distribution on your 2021 tax return.  Since you have a basis of $10,093 and you converted the full amount of the traditional IRA (value is $0 on December 31, 2021) your distribution will have a nontaxable part of $10,093 (shown on line 13 of 2021 Form 8606) and a taxable part of $3,388 (shown on line 18 of 2021 From 8606). Your basis on line 14 will be $0.

Your 2020 Form 8606 should not have changed, do not enter anything on your 2020 tax return.

@goyal_raj 

[goyal_raj]

Thanks DanaB27.

I entered the 2021 1099-R as you suggested and when it asked for IRA basis for 2020 from form 8606, I entered 4093.

Then I entered '0' as the value of the traditional IRA outstanding at the end of 2020.

It calculated a taxable amount of 3388 for this year. And I hope from next year I would be clean i.e. no more basis, just new contribution.

Is all of the above is correct?

Thanks so much for your help.

[DanaB27]

Yes, the taxable amount of $3,388 is correct and everything seems to be in order.

Yes, next year it will be easier since your traditional IRA is empty. If you make your contribution in 2022 and convert it right away in 2022 it should be easy to just enter your nondeductible contribution and Form 1099-R for the conversion.