Thanks, @dmertz . So, even if the conversion was agreed upon (still reviewing my notes), we should not be taxed on the conversion because the funds in the Traditional IRA were made in the same year as the conversion to the Roth IRA with post-tax dollars and had not been deducted. How do we reflect this in our tax return? Thanks.
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My wife made a contribution with post-tax funds (no deduction taken) to a new Traditional IRA in early 2019. We then asked our custodian to recharacterize that contribution as to being into a Roth IRA. Rather than recharacterize, they did a full account conversion. On her 2019 1099-R for the Traditional IRA, Box 7 has a distribution code of 2. I believe that this is an error and should instead (maybe) be code N? Code 2 conveys that it is a Roth conversion of pre-existing funds (where a deduction was taken in a prior year) and that they are taxable. Code N conveys that it was a same-year recharacterization which it was intended to be. When toggling this value from Code 2 to Code N, I see a substantial decrease in our TurboTax federal tax due which is what I would expect. The 2019 contribution originally to the Traditional IRA was with already taxed dollars and we have not taken a deduction against them. The custodian's response was: To summarize what happened, we submitted a conversion instead of a recharacterization in 2019. When performing a conversion, this is an irreversible action as of October of 2018. Am I understanding this correctly? If this is an error, how do we address this on our tax return if we are not able to receive a revised 1099-R? What should the code be for a same-year conversion? Thanks.
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