Weird situation: financial institution double recharacterized $1000 from Roth to traditional. How to report?

[dhuynh44]

Hi all,

I have a weird situation. Any advice would be greatly appreciated.

In 2020 I tried to do a backdoor Roth conversion. I accidentally contributed $1000 into Roth directly, then immediately recharacterized this amount to traditional, then converted back into the Roth. In March 2021, for some stupid reason (not sure why) I asked my financial institution to recharacterize another $1000 from Roth to traditional and converted this amount back into Roth. However, I did not contribute another $1000 into Roth directly, but the transaction went through.

So essentially I only contributed $1000 into Roth, but ended up recharacterizing $2000. Is this even possible to report this in tax/financial code?

I am wondering how I can report this bc since I recharacterized in 2021 it is considered an outstanding recharacterization which increases my basis going forward and increases my amount converted in 2021 which also increases my taxes due.

I have called my financial institution to see if they could correct this mistake and send me new tax forms, and after looking at it they denied any new forms bc everything was done correctly per my request. I am prepared to pay this extra amount bc of my mistake, however I was curious if anyone had any advice on what to do since my tax forms reflect this double recharacterizaton?

Thanks 

[fanfare]

why would your financial institution recharacterize a deposit that you did not make?

Why does financial institution believe they followed your instructions?

You have to ask them.

[dhuynh44]

@fanfare 

Yes, I’ve spoken with multiple reps and supervisors who’ve sent them to different “departments” and after looking at the transactions they’ve stated everything was done correctly and processed correctly so their is no further action needed and my request was denied.   They probably recharacterized $1000 already in the Roth

I can accept this mistake and take the extra tax hit.  Just curious if anyone had any insight into how to report it.  I was just going to report the extra recharacterization as it reflects on my tax forms.  Does this sound reasonable?  Not sure what else I can do…

[fanfare]

"They probably recharacterized $1000 already in the Roth"

If 1000 went into your IRA for 2021 you have to decide if it is deductible or not deductible.

If you elect non-deductible you would have to track a basis in your IRA.

maybe you already have a basis in IRA.  Or maybe you are not eligible for a deduction.

Or maybe you are not eligible for any contribution. in which case you have an excess contribution.

There is no tax hit  per se to do a recharacterization.

The total of all movements goes in the A column, the taxable amount, if any goes in the B column

You explain complex situation by attaching an explanation to your tax return, if desired. 

TurboTax CD/download lets you explain and also e-File.

[dhuynh44]

@fanfare 

It was a nondeductible contribution.   However the amount recharacterized was performed in 2021 for year 2020 and considered outstanding, so there was some gain which I am being taxed on.  

This same amount that was recharacterized was converted in year 2021 from traditional to Roth (backdoor) so it increased the amount converted on my 1099 for year 2021.   Would a higher amount converted on my 1099-R increase my taxes at all, if I had a basis from previous year?

also, is it even feasible to report a higher amount recharacterized than contributed? It doesn’t make sense to.   Thanks 

[fanfare]

A recharacterization for year 2020 has to go on your 2020 tax return. your box 7 CODE  should be "R".

See IRS Pub 590A "Recharacterizations".