Traditional IRA to Roth IRA Recharacterization Tax Instructions

[ericrayanderson]

Hello,

In 2019, I completed a Traditional IRA to Roth IRA recharacterization.

Specifically, the steps were:

1. 03/05/2019 - Contributed $6,000 to my traditional IRA
2. Early December - Realized my income would be too high to deduct the Traditional IRA Contribution
3. 12/24/2019 - "Recharacterized" an amount of $6,912.84 ($6,000 + Growth, calculated by my broker) to a Roth IRA (opened an account to do this). (The "trade date" is 12/24/2019, "settlement date" is 12/26/2019).
4. Received a 1099-R in early 2020

Can someone please provide insight to how I would handle this in turbo tax? Also, I have read I may need to attach a "written statement" - does anyone know how this works in turbo tax, and is anyone able to provide me of the wording of this statement given the information above?

Thank you for the help,

Eric

[macuser_22]

A code 8 1099-R does nothing whatsoever if entered into the 1099-R . It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2019 tax return.

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.

The proper way to report the recharacterization and earnings which is to enter the 2019 Traditional IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Traditional IRA to a Roth IRA - recharacterize".

The amount The amount of the original Traditional contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code 8 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

[ericrayanderson]

Can / does my 1099 form need to be imported (my brokerage is Vanguard)?

Also, does there exists guidance on the statement on I need to write? (Specific syntax, wording, etc.).

Thanks,

Eric

[macuser_22]

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@ericrayanderson wrote:

Can / does my 1099 form need to be imported (my brokerage is Vanguard)?

Also, does there exists guidance on the statement on I need to write? (Specific syntax, wording, etc.).

Thanks,

Eric

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Whether you can import or not depends if the IRA trustee has made it available for import.

As I said above: Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

[ericrayanderson]

Thank you.

 So to summarize, my steps will be:

1. Enter $6,000 as a traditional IRA as I typically would had I contributed to a normal traditional IRA
2. Turbo tax will ask  something like"Did you switch from a Traditional IRA to a Roth IRA - recharacterize"?
3. Press Yes
4. Turbo tax will prompt me to import my 1099 R (Vanguard)
5. Enter that recharacterized $6,000? (Import may cover this?)
6. Turbo tax asks for a written explanation
7. Mine will be "On March 5 2019 I contributed $6,000 to a Traditional IRA. On December 24 2019 I recharacterized the entire $6,000 plus $912.84 of earnings to a Roth IRA"

That should cover it?

Thanks again.

[Mark151]

I believe I did this but TurboTax still said that part of my IRA contribution is not tax deductible. It seems like they think that I'm still doing a Traditional contribution.

[WendyN2]

Contributions to Roth IRAs are not deductible the year you make them: they consist of after-tax money. ... However, you may be eligible for a tax credit of 10% to 50% on the amount contributed to a Roth IRA. Low- and moderate-income taxpayers may qualify for this tax break, called the Saver's Credit. I hope this helps answer your question as is sounded as though you thought that a Roth IRA carries the same tax status as a Traditional.