Two 2021 1099R for Code R and Code 2

[kenchadetta]

Hello All,

In 2020-2021 I contributed $6000 to my Roth IRA brokerage account

• $4000 total in 2020
• $2000 in Apr 27 of 2021

Then in 2021, I realized my income is too high for the $6K Roth IRA contribution, so notified my brokerage in May 2021 so that they can perform a backdoor for me. They moved $8602(not sure why it is not $6000 instead) to a brand new Traditional IRA account that is setup for the backdoor purpose.

In Nov 2021, I have the brokerage move the amount of $9518 (after gains) from my Traditional IRA back to my original Roth IRA account.

I received two form 1099-R, with two different amount for gross distribution.

    First 1099R:

• Line 1 with $8602
• All other lines are empty except 7, and the code is 'R'

    Second 1099R:

• Line 1 with $9518
• Line 2A: $9518
• Line 2B: Both taxable amt not determine and total distribution as 'X'
• Line 7: Code is 2 and IRA/SEP/SIMPLE has a 'X'

My question is how can I correctly input these two forms into Turbo tax?

Thank you very much

[DanaB27 · Accepted solution]

You will need to enter your 2020 contribution and recharacterization on your 2020 return. Please see How do I amend my 2020 return? if you didn't enter it on the original 2020 return.

You had $8,602 transferred to the traditional IRA because you had gains of $2,602 on the $6,000 contribution. These need to be moved with the original contribution when you make a recharacterization.

To verify, you contributed $4,000 for 2020 in 2020 and $2,000 for 2020 in 2021 and therefore made a total contribution of $6,000 for 2020?

If yes please verify that you entered/ follow these steps to report your recharacterization on your 2020 tax return. You will enter it when you enter your 2020 Roth contribution on your 2020 tax return:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution
5. Enter the Roth contribution amount of $6,000
6. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
7. TurboTax will ask for an explanation statement where it should be stated that the original $6,000 plus $2,602 earnings were recharacterized.
8. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since 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)

A 2021 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2020 and this belongs on the 2020 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. 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.

TurboTax will create Form 8606 and you will have a $6,000 basis on line 14 to carry over to 2021.

On your 2021 tax return, you will enter the Form 1099-R for the 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 "Your 1099-R Entries" 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 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[dmertz]

The recharacterization should have been reflected on your 2020 tax return, with the 2020 tax return showing a traditional IRA contribution either deductible on Schedule 1 or nondeductible on Form 8606.  If your 2020 tax return does not show this, you must amend your 2020 tax return to show this.  Otherwise you can ignore the code-R 2021 Form 1099-R.

$8,602 was transferred to the traditional IRA because the gains attributable to the $6,000 were required to accompany the $6,000.

The code-2 2021 Form 1099-R must be entered into 2021 TurboTax.  Indicate that you moved the money to another retirement account, that you did a combination of rolling over, converting and cashing out (even though you converted the entire amount), then indicate the amount converted.  Be sure to Click the Continue button on the page that lists the Forms 1099-R that you've entered and verify that TurboTax shows the correct basis in nondeductible traditional IRA contributions so that TurboTax properly prepares Form 8606 to calculate the taxable amount of the Roth conversion.  If your basis in nondeductible contributions was entirely from $6,000 shown on line 14 of your 2020 Form 8606 and you had no other funds in traditional IRAs on December 31, 2021, the taxable amount of your Roth conversion will be $3,518.

[kenchadetta]

Thank you for your response. Just to confirm, for 2021's return, I only need to upload one 1099R, which is the one without the Distribution Code: 'R' is that correct?

Thank you again

[DanaB27]

Yes, you only need to upload Form 1099-R with code 2. You can ignore Form 1099-R with code R.

@kenchadetta

[kenchadetta]

@DanaB27Thank you for your previous clarification.

For the 2021 return,

I am at the part where I see the question: What Did You Do With Money From [My Financial Institution]?

Am I supposed to select both response:

"I moved the money to another retirement account(or returned it to the same retirement account)"  and

"I did a combination of rolling over, converting or cashing out the money"

If that is correct, then TurboTax will ask me "Tell us how much of the $9518 you move to an IRA, 401(K) or other retirement account?

so how much of the $9518 should I enter? and to which line below?:

1) "Amount rolled over to another (or back to the same) retirement account

2) "Amount converted to a Roth IRA account"

Thank you in advance

[DanaB27]

No, you will only select “I did a combination of rolling over, converting or cashing out the money" and then enter the $9,518 as converted to Roth if you moved all of it to the Roth IRA.

@kenchadetta

[kenchadetta]

Hey @DanaB27 I followed your suggested and my Federal Tax Due went up by $2295, is that the expected behavior?

Will this number get reduce(via refund difference) once i amend my 2020 return?

Thank you

My current screen for reference:

This is how it looks like in the relevant form:

[DanaB27]

That amount seems a bit high, only the earnings of $3,518 should be taxable on line 4b of Form 1040. Please verify this.

Did you enter your $6,000 basis when TurboTax asks about the prior year basis (from line 14 of your 2020 Form 8606)? And your value for all traditional IRA/SEP/SIMPLE IRAs was $0 on December 31, 2021?

@kenchadetta

[kenchadetta]

@DanaB27  My current form 1040, the line 4b is also $9519.

For 2020 return, I couldn't find any 8060 attached.

Where can I located this information: "And your value for all traditional IRA/SEP/SIMPLE IRAs was $0 on December 31, 2021" ?

Thank you

[DanaB27]

Please follow these steps:

1. Click on "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R”
3. On the "Your 1099-R Entries" screen click "continue"
4. Answer "yes" to "Any nondeductible Contributions to your IRA?" since you had any nondeductible contributions in prior years.
5. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@kenchadetta

[kenchadetta]

@DanaB27  After following your instructions, i am met with this page:

Form 8606 is not included in my 2020. Will it be available after i make my 2020 amendments?

If so, should I put a zero in the time being and wait for the 2020 amendment to be completed?

Thank you

[DanaB27]

No, you can go ahead and enter your $6,000 basis (nondeductible contribution from the recharacterization) on this screen.

Yes, when you file your 2020 amended return to report the recharacterization and make it nondeductible then TurboTax will create the 2020 Form 8606 with a $6,000 basis on line 14.

@kenchadetta

[kenchadetta]

@DanaB27Thank you for your response, I am currently on this page:

I looked at the brokerage, and they told me Form 5498 wont be available until May 21 2022, so I would need to get the sum of the total amount for each Traditional IRA or can I skip this section?

[DanaB27]

You can get the value of your from your end-of-the-year statement. Check your statement for the value on December 31, 2021. If you have more than one traditional IRA then you would add the values up.

@kenchadetta