Roth to traditional re-characterization & regular backdoor conversion both in one year

[AARtex81]

Hi, This is what happened:

04/22: Re-characterized my 5.5k roth contribution for 2021 because it turned out I was above income limit

04/22: Converted this 5.5k from Traditional to Roth (backdoor)

05/22: Added my 2022 contribution of 6k to the traditional IRA

05/22: Converted this 6k from Traditional to Roth (backdoor)

Right now I received a 1099-R for 11.5k with Code 2. How exactly should I enter this in TurboTax Online?

Really appreciate your input.

[DanaB27]

The recharacterization should have been reported on your 2021 tax return with the steps below. You should have the 2021 Form 8606 with the basis on line 14 which will be entered on your 2022 tax return.

On your 2021 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 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (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)

On your 2022 tax return

To enter the nondeductible contribution to the traditional 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 “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 contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
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 warning and then a screen saying $0 is deductible).

To enter the Form 1099-R 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

[AARtex81]

Thanks DanaB27 for your reply. I have always used TurboTax for my taxes but I don't remember if I entered the Re-Characterization in my 2021 tax correctly. But I do have 6k under line 14 of my 8606 form for 2021. Does that mean that I did re-characterization correctly for 2021? Really appreciate your input in this matter

[DanaB27]

You can check your 2021 tax return if it has an explanation statement for the recharacterization.

Showing the basis on line 14 of your 2021 Form 8606 only indicates that you made a nondeductible traditional IRA contribution. It doesn't show if you entered a recharacterization or entered a direct traditional IRA contribution.

You will enter the $6,000 basis from your 2021 Form 8606 in your 2022 tax return (if it isn't automatically transferred).

[AARtex81]

Thanks for your answer Dana. I see something strange: My wife did the same thing:

04/22: Re-characterized her 6k roth contribution for 2021 because it turned out we were above income limit (at that time the value was 6.5k, so we re-characterized 6.5k to traditional)

04/22: Converted this 6.5k from Traditional to Roth (backdoor)

05/22: Added my 2022 contribution of 6k to the traditional IRA

05/22: Converted this 6k from Traditional to Roth (backdoor)

Now under line 4a (1040) I see 12.5k & under line 4b I see taxable amount of 500? Did we do something wrong. Really appreciate your input in this matter.

[DanaB27]

No, that is correct. The $500 earnings are deemed to have been earned in the traditional IRA since you made the recharacterization. Any earnings in the traditional IRA will be taxable during the conversion.

@AARtex81