TIRA->ROTH conversion year N+1 when do I pay taxes on gains?

[markenx]

Hi folks - started reading this forum (and investing) 2 years ago and finally decided to post something since I couldn't find the answer by searching. Thanks for all the excellent info so far

Contributed $5000 in 2012 to ROTH IRA
Got more income than expected, recharacterized $2500
Fidelity transfers $2574 to my TIRA
Converted TIRA (only has the $2574) to ROTH IRA on 2013

I did not receive a 1099-R. On my 2012 tax return, do I declare the $74 gain and pay its taxes somewhere? Or is that payment deferred until my 2013 tax return?

As a bonus, what do you put as "Reason for Recharacterization"? This is for the Explanation Statement on conversions using TurboTax.

Thank you!

[Duckie]

Contributed $5000 in 2012 to ROTH IRA
Got more income than expected, recharacterized $2500
Fidelity transfers $2574 to my TIRA
Converted TIRA (only has the $2574) to ROTH IRA on 2013

I did not receive a 1099-R. On my 2012 tax return, do I declare the $74 gain and pay its taxes somewhere? Or is that payment deferred until my 2013 tax return?

Since the conversion happened in 2013 you will need to put the $74 gain on your 2013 taxes next year. Don't forget to file IRS Form 8606 for 2012 with the $2,500 that was recharacterized as your basis.

As a bonus, what do you put as "Reason for Recharacterization"? This is for the Explanation Statement on conversions using TurboTax.

I've never done it, but I guess you could write something like "Went over income limit for direct Roth IRA contributions." Is this statement required?

Out of curiosity, was the gain $148 and Fidelity left half with the Roth and moved half to the TIRA?

[Alan S.]

Unless Fidelity made an incorrect calculation, the total gain had to be $148, with half staying in the Roth and half included in the partial recharacterization.

What tax program asks for a reason? The reasons are immaterial and boil down to either you had to or you chose to. What is important is a brief narrative explanation of the recharacterization, ie dates and amounts of the original contribution, that the recharacterized portion was 50% and the value that transferred to the TIRA account.

[markenx]

The total gain was $148, with $74 staying on ROTH. I do not need to pay taxes on that half of it though, correct?

TurboTax has a "Reason", but it seemed more optional than not. Since this is my first time using semi-Backdoor ROTH, I wasn't sure what to write. It's limited to 80 characters, so whatever it is must be very short.

So for form 8606 on 2012, my basis is 2500 with no conversions (all that info will go on 8606 on 2013).

Thanks guys

[Alan S.]

You only pay taxes on the $74 converted, not on the earnings that stayed in the Roth IRA.

Correct, your basis from non deductible contributions on the 2012 8606 is 2,500. The conversion will be reported on your 2013 8606.