Turbotax guide for Roth Recharacterization and conversion

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Topic Author
haranoth
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Turbotax guide for Roth Recharacterization and conversion

Post by haranoth »

While doing taxes I realized, I forgot to do backdoor roth (2 step conversion process) and contributed "directly" to my roth IRA account.
However, after talking to Vanguard rep and reading through White Coat Investor's excellent article
https://www.whitecoatinvestor.com/ira-r ... rizations/
I now know, I have till April 15th/18th to remedy the situation.

* I need to open a trad IRA
* Re-characterize the contribution to trad IRA
* and then convert it to roth IRA.

However, a couple more hints would immensely help me out.
1. I contributed in May of 2022 6000$. Now, if I want to re-characterize, how much should I re-characterize? 6000$ or 6000+any income made from 6000 ? (Given the market, it might actually be less than 6000 , I might be re-characterizing).
What should be the amount to re-characterize

2. Is there a turbotax step-by-step guide showing the workflow. I see whitecoat and the finance buff has a step-by-step guide for turbotax roth ira contribution reporting.
https://thefinancebuff.com/how-to-repor ... c-turbotax
https://www.whitecoatinvestor.com/how-t ... -turbotax/
Is there some blog posts showing something similar with the steps for IRA re-characterization + backdoor roth conversion?
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

haranoth wrote: Wed Feb 22, 2023 10:15 am What should be the amount to re-characterize
You tell your IRA custodian you want to recharacterize your 2022 $6000 Roth IRA contribution including any gains or losses to a TIRA. The custodian will do the figuring. If you don't already have a TIRA you will need to open one.
Is there some blog posts showing something similar with the steps for IRA re-characterization + backdoor roth conversion?
Here's one from The White Coat Investor.

With TurboTax, go to the deduction section and using the question/answer method:
  • Check both the TIRA and Roth IRA boxes.
  • You did NOT contribute to a TIRA so TT will eventually get you to the Roth IRA section.
  • You made a Roth IRA contribution of $6000 for 2022 in 2022.
  • You recharacterized the entire $6000 contribution to a TIRA. Ignore any gains or losses for this question.
  • That the now-TIRA contribution is non-deductible.
"Recharacterized" will trigger the required recharacterization statement and "non-deductible" will trigger Form 8606. The statement should say something like:
  • "On May 10, 2022, I contributed $6000 to a Roth IRA. On February 25, 2023 I recharacterized the entire $6000 contribution plus gains of $40.23 totaling $6040.23 to a TIRA because my income was too high in 2022 to contribute directly to a Roth IRA."
Form 8606 should contain just the following entries:
  • Part I
    Line 1 -- 6000 (2022 non-deductible contribution)
    Line 2 -- 0 (previous basis)
    Line 3 -- 6000
    Line 14 -- 6000 (current basis, goes on line 2 next year)
This documents your TIRA basis. If the conversion happens in 2023 it will be reported on your 2023 taxes next year.

Here's what the instructions for Form 8606 say about "Recharacterizations" starting on page 4.
  • "You made a contribution to a Roth IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a traditional IRA. Report the nondeductible traditional IRA portion of the recharacterized contribution, if any, on Form 8606, Part I. Don’t report the Roth IRA contribution (whether or not you recharacterized all or part of it) on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2022, include the amount transferred from the Roth IRA on your 2022 Form 1040, 1040-SR, or 1040-NR, line 4a. If the recharacterization occurred in 2023, report the amount transferred only in the attached statement, and not on your 2022 or 2023 tax return."
You will get a 1099-R in 2024 for the recharacterization. It should be coded "R—Recharacterized IRA contribution made for 2022 and recharacterized in 2023." in box 7. You will enter that on your 2023 TT return. If properly coded the information won't appear on your 1040 but the IRS will get the data.
Last edited by Duckie on Sun Mar 12, 2023 4:10 pm, edited 1 time in total.
Topic Author
haranoth
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by haranoth »

Thank you Duckie ! :)
arw526
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by arw526 »

Duckie wrote: Wed Feb 22, 2023 6:39 pm
haranoth wrote: Wed Feb 22, 2023 10:15 am What should be the amount to re-characterize
You tell your IRA custodian you want to recharacterize your 2022 $6000 Roth IRA contribution including any gains or losses to a TIRA. The custodian will do the figuring. If you don't already have a TIRA you will need to open one.
Is there some blog posts showing something similar with the steps for IRA re-characterization + backdoor roth conversion?
Here's one from The White Coat Investor.

With TurboTax, go to the deduction section and using the question/answer method:
  • Check both the TIRA and Roth IRA boxes.
  • You did NOT contribute to a TIRA so TT will eventually get you to the Roth IRA section.
  • You made a Roth IRA contribution of $6000 for 2022 in 2022.
  • You recharacterized the entire $6000 contribution to a TIRA. Ignore any gains or losses for this question.
  • That the now-TIRA contribution is non-deductible.
"Recharacterized" will trigger the required recharacterization statement and "non-deductible" will trigger Form 8606. The statement should say something like:
  • "On May 10, 2022, I contributed $6000 to a Roth IRA. On February 25, 2023 I recharacterized the entire $6000 contribution plus gains of $40.23 totaling $6040.23 to a TIRA because my income was too high in 2022 to contribute directly to a Roth IRA."
Form 8606 should contain just the following entries:
  • Part I
    Line 1 -- 6000 (2022 non-deductible contribution)
    Line 2 -- 0 (previous basis)
    Line 3 -- 6000
    Line 14 -- 6000 (current basis, goes on line 2 next year)
This documents your TIRA basis. If the conversion happens in 2023 it will be reported on your 2023 taxes next year.

Here's what the instructions for Form 8606 say about "Recharacterizations" starting on page 4.
  • "You made a contribution to a Roth IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a traditional IRA. Report the nondeductible traditional IRA portion of the recharacterized contribution, if any, on Form 8606, Part I. Don’t report the Roth IRA contribution (whether or not you recharacterized all or part of it) on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2022, include the amount transferred from the Roth IRA on your 2022 Form 1040, 1040-SR, or 1040-NR, line 4a. If the recharacterization occurred in 2023, report the amount transferred only in the attached statement, and not on your 2022 or 2023 tax return."
You will get a 1099-R in 2023 for the recharacterization. It should be coded "R—Recharacterized IRA contribution made for 2022 and recharacterized in 2023." in box 7. You will enter that on your 2023 TT return. If properly coded the information won't appear on your 1040 but the IRS will get the data.
Duckie -
I am experiencing this scenario from last year.... I receieved two 1099-Rs from Vanguard this year (one for my ROTH and for my Traditional IRA).... Would I now enter both of these into my 2022 Tax Return (from my 2021 correction)? I just want to make sure I am understanding correctly. Thank you
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

arw526 wrote: Thu Feb 23, 2023 7:55 am I am experiencing this scenario from last year.... I receieved two 1099-Rs from Vanguard this year (one for my ROTH and for my Traditional IRA).... Would I now enter both of these into my 2022 Tax Return (from my 2021 correction)?
The short answer is yes. If you received a 1099-R you enter that data into your tax-software.
I just want to make sure I am understanding correctly.
Just so I understand, it looks like in 2021 you contributed to a Roth IRA directly and your income was too high, so in 2022 you recharacterized that Roth IRA contribution to a non-deductible TIRA contribution and then converted the TIRA back to your Roth IRA. Is that correct?

Assuming the above is correct, you enter the 1099-Rs in the Income section and in the Deductions section you report the conversion which will trigger Form 8606. Did you recharacterize before you filed your 2021 taxes so they included Form 8606 for the non-deductible contribution? That basis will need to go on your 2022 Form 8606.

The Roth IRA 1099-R is because you recharacterized which means you took a distribution, moving money from the Roth IRA to the TIRA. It probably has code R in box 7. The TIRA 1099-R is because you converted which means you took a distribution, moving money from the TIRA to the Roth IRA. It probably has code 2 (if under age 59.5) in box 7.
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

Duckie wrote: Thu Feb 23, 2023 4:27 pm
arw526 wrote: Thu Feb 23, 2023 7:55 am I am experiencing this scenario from last year.... I receieved two 1099-Rs from Vanguard this year (one for my ROTH and for my Traditional IRA).... Would I now enter both of these into my 2022 Tax Return (from my 2021 correction)?
The short answer is yes. If you received a 1099-R you enter that data into your tax-software.
I just want to make sure I am understanding correctly.
Just so I understand, it looks like in 2021 you contributed to a Roth IRA directly and your income was too high, so in 2022 you recharacterized that Roth IRA contribution to a non-deductible TIRA contribution and then converted the TIRA back to your Roth IRA. Is that correct?

Assuming the above is correct, you enter the 1099-Rs in the Income section and in the Deductions section you report the conversion which will trigger Form 8606. Did you recharacterize before you filed your 2021 taxes so they included Form 8606 for the non-deductible contribution? That basis will need to go on your 2022 Form 8606.

The Roth IRA 1099-R is because you recharacterized which means you took a distribution, moving money from the Roth IRA to the TIRA. It probably has code R in box 7. The TIRA 1099-R is because you converted which means you took a distribution, moving money from the TIRA to the Roth IRA. It probably has code 2 (if under age 59.5) in box 7.
I also did this last year and followed the steps that you listed, and have entered my 1099-R forms but I'm noticing that my form 8606 line 4 is not being filled. It looks like I'm missing something and TurboTax isn't capturing that I made a Roth IRA conversion in 2022 and not "going to line 4" in response to the Yes/No question. Should entering my 1099-R form information should automatically and correctly populate form 8606?
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

forthegoodmoments wrote: Sat Mar 11, 2023 2:54 pm I also did this last year and followed the steps that you listed, and have entered my 1099-R forms but I'm noticing that my form 8606 line 4 is not being filled.
Are you misunderstanding line 4? It does not get filled unless you tell it you made a contribution for 2022 during 2023.

"Go to line 4" just means continue on down the form. If line 4 is blank, go on to line 5 and so on. (This is if you fill in the form by hand, not by software).


It looks like I'm missing something and TurboTax isn't capturing that I made a Roth IRA conversion in 2022 and not "going to line 4" in response to the Yes/No question. Should entering my 1099-R form information should automatically and correctly populate form 8606?
Mostly, yes. But software often leaves lines 6 - 12 blank and does that calculation behind the scenes on a worksheet. Then it will popluate lines 13 - 18.

Does that explain what you are seeing?
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

retiredjg wrote: Sat Mar 11, 2023 3:13 pm
forthegoodmoments wrote: Sat Mar 11, 2023 2:54 pm I also did this last year and followed the steps that you listed, and have entered my 1099-R forms but I'm noticing that my form 8606 line 4 is not being filled.
Are you misunderstanding line 4? It does not get filled unless you tell it you made a contribution for 2022 during 2023.

"Go to line 4" just means continue on down the form. If line 4 is blank, go on to line 5 and so on. (This is if you fill in the form by hand, not by software).


It looks like I'm missing something and TurboTax isn't capturing that I made a Roth IRA conversion in 2022 and not "going to line 4" in response to the Yes/No question. Should entering my 1099-R form information should automatically and correctly populate form 8606?
Mostly, yes. But software often leaves lines 6 - 12 blank and does that calculation behind the scenes on a worksheet. Then it will popluate lines 13 - 18.

Does that explain what you are seeing?
I'm expecting line 4 to be zero like you said, and I get that. But the problem is that nothing between lines 3 and 14 are getting populated. So I don't think the Roth conversions I did in 2022 (for 2021 and 2022 contributions, in my case) are getting captured. So I'm definitely missing something... Just not sure what/where.
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

forthegoodmoments wrote: Sat Mar 11, 2023 2:54 pm
Duckie wrote: Thu Feb 23, 2023 4:27 pm Just so I understand, it looks like in 2021 you contributed to a Roth IRA directly and your income was too high, so in 2022 you recharacterized that Roth IRA contribution to a non-deductible TIRA contribution and then converted the TIRA back to your Roth IRA. Is that correct?

Assuming the above is correct, you enter the 1099-Rs in the Income section and in the Deductions section you report the conversion which will trigger Form 8606. Did you recharacterize before you filed your 2021 taxes so they included Form 8606 for the non-deductible contribution? That basis will need to go on your 2022 Form 8606.

The Roth IRA 1099-R is because you recharacterized which means you took a distribution, moving money from the Roth IRA to the TIRA. It probably has code R in box 7. The TIRA 1099-R is because you converted which means you took a distribution, moving money from the TIRA to the Roth IRA. It probably has code 2 (if under age 59.5) in box 7.
I also did this last year and followed the steps that you listed, and have entered my 1099-R forms but I'm noticing that my form 8606 line 4 is not being filled. It looks like I'm missing something and TurboTax isn't capturing that I made a Roth IRA conversion in 2022 and not "going to line 4" in response to the Yes/No question. Should entering my 1099-R form information should automatically and correctly populate form 8606?
I am taking that to mean you contributed to a Roth IRA, recharacterized to a TIRA, and then converted back to the Roth IRA. The above case has a person contributing in 2021 and recharacterizing in 2022. Let's get very specific about your case:
  1. In and for what year did you make the Roth IRA contribution, 2021 or 2022? Meaning did you contribute for 2021 in 2021 or in early 2022 for 2021? Or did you contribute in 2022 for 2022? I am hoping the contribution was for 2022 otherwise you'll have to amend your 2021 return before you do your 2022 return.
    _
  2. In what year did you recharacterize that Roth IRA contribution to a TIRA contribution, 2021 or 2022? I assume 2022 but am checking.
    _
  3. I know you converted in 2022.
    _
  4. Did you get two 1099-Rs this January for the 2022 distributions? One for the Roth IRA withdrawal when you recharacterized to a TIRA and one for the TIRA withdrawal when you converted back to the Roth IRA?
    _
  5. What is the code in box 7 of the 1099-Rs?
forthegoodmoments wrote: Sat Mar 11, 2023 3:27 pm But the problem is that nothing between lines 3 and 14 are getting populated. So I don't think the Roth conversions I did in 2022 (for 2021 and 2022 contributions, in my case) are getting captured. So I'm definitely missing something... Just not sure what/where.
What are all the filled in lines on your 2022 Form 8606? List them. If there really is nothing between lines 3 and 14 are you sure you entered both 1099-Rs in the income section?

Are you using TurboTax online or download?
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

Duckie wrote: Sat Mar 11, 2023 4:44 pm
forthegoodmoments wrote: Sat Mar 11, 2023 2:54 pm
Duckie wrote: Thu Feb 23, 2023 4:27 pm Just so I understand, it looks like in 2021 you contributed to a Roth IRA directly and your income was too high, so in 2022 you recharacterized that Roth IRA contribution to a non-deductible TIRA contribution and then converted the TIRA back to your Roth IRA. Is that correct?

Assuming the above is correct, you enter the 1099-Rs in the Income section and in the Deductions section you report the conversion which will trigger Form 8606. Did you recharacterize before you filed your 2021 taxes so they included Form 8606 for the non-deductible contribution? That basis will need to go on your 2022 Form 8606.

The Roth IRA 1099-R is because you recharacterized which means you took a distribution, moving money from the Roth IRA to the TIRA. It probably has code R in box 7. The TIRA 1099-R is because you converted which means you took a distribution, moving money from the TIRA to the Roth IRA. It probably has code 2 (if under age 59.5) in box 7.
I also did this last year and followed the steps that you listed, and have entered my 1099-R forms but I'm noticing that my form 8606 line 4 is not being filled. It looks like I'm missing something and TurboTax isn't capturing that I made a Roth IRA conversion in 2022 and not "going to line 4" in response to the Yes/No question. Should entering my 1099-R form information should automatically and correctly populate form 8606?
I am taking that to mean you contributed to a Roth IRA, recharacterized to a TIRA, and then converted back to the Roth IRA. The above case has a person contributing in 2021 and recharacterizing in 2022. Let's get very specific about your case:
  1. In and for what year did you make the Roth IRA contribution, 2021 or 2022? Meaning did you contribute for 2021 in 2021 or in early 2022 for 2021? Or did you contribute in 2022 for 2022? I am hoping the contribution was for 2022 otherwise you'll have to amend your 2021 return before you do your 2022 return.
    _
  2. In what year did you recharacterize that Roth IRA contribution to a TIRA contribution, 2021 or 2022? I assume 2022 but am checking.
    _
  3. I know you converted in 2022.
    _
  4. Did you get two 1099-Rs this January for the 2022 distributions? One for the Roth IRA withdrawal when you recharacterized to a TIRA and one for the TIRA withdrawal when you converted back to the Roth IRA?
    _
  5. What is the code in box 7 of the 1099-Rs?
forthegoodmoments wrote: Sat Mar 11, 2023 3:27 pm But the problem is that nothing between lines 3 and 14 are getting populated. So I don't think the Roth conversions I did in 2022 (for 2021 and 2022 contributions, in my case) are getting captured. So I'm definitely missing something... Just not sure what/where.
What are all the filled in lines on your 2022 Form 8606? List them. If there really is nothing between lines 3 and 14 are you sure you entered both 1099-Rs in the income section?

Are you using TurboTax online or download?

Yes. All contributions were made in the corresponding calendar year, and not between January and April before tax filing.
In contribution amounts and chronological order of transactions:
6000 to Roth IRA (2021) *never had a Roth IRA prior to this
1500 to Roth IRA (2022)
7500 recharacterized Roth to Trad (2022) *never had a Trad IRA prior to this
4500 to Trad IRA (2022)
12000 Backdoor (2022)

I actually got 3 1099-R forms. 1 for Trad IRA and 2 for Roth IRA.

For Traditional IRA - I figure this is for the 12000 Backdoor
(1) 11355.40
(2) 11355.40
(2b) Taxable amount not determined
(7) 2 + box checked

For Roth IRA
1st - I figure this is for the recharacterization of 1500 (2022 contribution)
(1) 1368.78
(2) 0
(7) N

2nd - I figure this is for the recharacterization of 6000 (2021 contribution)
(1) 5689.20
(2) 0
(3) Total distribution
(7) R

I'm using the TurboTax download version. Gave up trying to figure out where I went wrong and scrapped everything and started from scratch. Now I have Form 8606 showing:
(1) 5869
(2) 5689
(3) 11558
(5) 11558
(13) 11355
(14) 203

This is the best I've managed so far. Was definitely naïve of me to think that I just needed to enter numbers off the forms that I got and that the software would take care of the rest. Oops!
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

Forthegoodmoments, I hope Duckie will be back in touch to help you later today. Until then, here are some things to work on.

Your 2021 IRA contribution is $6,000, not $5,689.

Your 2022 IRA contribution is also $6,000, not $5,869. (and your 2021 Form 8606 should also show $6,000 on lines 1, 3, and 14).

The amount converted to Roth is $11,355 (which goes on line 8 if you are doing the form by hand).

If you have no other money in tIRA, line 14 should be $645 if you do the form by hand. It is likely to be $0 if you do the form by software (and lines 6 - 12 may be blank)

You still have not mentioned what is on lines 16 - 18. If these lines are blank, something is wrong.

Line 16 - 18 is where the Roth conversion step of the backdoor Roth process is reported. It should show how much of the conversion was taxable. In your case, that should be $0 or a negative number (not sure how it will show up).
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

retiredjg wrote: Sun Mar 12, 2023 11:04 am Forthegoodmoments, I hope Duckie will be back in touch to help you later today. Until then, here are some things to work on.

Your 2021 IRA contribution is $6,000, not $5,689.

Your 2022 IRA contribution is also $6,000, not $5,869. (and your 2021 Form 8606 should also show $6,000 on lines 1, 3, and 14).

The amount converted to Roth is $11,355 (which goes on line 8 if you are doing the form by hand).

If you have no other money in tIRA, line 14 should be $645 if you do the form by hand. It is likely to be $0 if you do the form by software (and lines 6 - 12 may be blank)

You still have not mentioned what is on lines 16 - 18. If these lines are blank, something is wrong.

Line 16 - 18 is where the Roth conversion step of the backdoor Roth process is reported. It should show how much of the conversion was taxable. In your case, that should be $0 or a negative number (not sure how it will show up).
Thank you for the clarification on the IRA entries - I thought they needed to match up with the numbers on the 1099-R. I will definitely correct those!

Line 16, 17 = 11355 and Line 18 = 0 -- so I think I'm OK there.
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

When you recharacterize a Roth IRA contribution, it is a "do over". It makes it as if you put the $6k in tIRA to begin with.

Your original contribution was $6k and that continues to be your contribution, even if it is not the same amount that was recharacterized. The recharacterization represents your $6k contribution plus or minus associated gains or losses.

Looking at lines 16 - 18, your Form 8606 appears to me to be right. :D

Once you put $6k on those lines, please tell us what line 14 turns out to be and whether you did it by hand or by software.
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

retiredjg wrote: Sun Mar 12, 2023 12:46 pm When you recharacterize a Roth IRA contribution, it is a "do over". It makes it as if you put the $6k in tIRA to begin with.

Your original contribution was $6k and that continues to be your contribution, even if it is not the same amount that was recharacterized. The recharacterization represents your $6k contribution plus or minus associated gains or losses.

Looking at lines 16 - 18, your Form 8606 appears to me to be right. :D

Once you put $6k on those lines, please tell us what line 14 turns out to be and whether you did it by hand or by software.
Yes, the original contribution and recharacterized amount not being the same really threw me off. Thank you again for pointing that out! Hopefully starting next year, I won't have that problem anymore with just a straightforward backdoor as soon as funds settle.

With 6000 in lines 1 and 2, line 14 comes out to 645, just as you said. And with no change to federal/state tax estimates :happy
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

Does turbotax give you the $645 figure by going through the interview questions? Or did you fill in the form yourself, without using the interveiw questions? Or did you do it by hand?
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

retiredjg wrote: Sun Mar 12, 2023 1:26 pm Does turbotax give you the $645 figure by going through the interview questions? Or did you fill in the form yourself, without using the interveiw questions? Or did you do it by hand?
Just the interview questions. And did not modify anything in the forms.
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

Thanks. Just curious. Some people end up with $0 on line 14. There is always a debate about whether you can have basis in an IRA that contains no money. Opinions vary.
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

retiredjg wrote: Sun Mar 12, 2023 1:32 pm Thanks. Just curious. Some people end up with $0 on line 14. There is always a debate about whether you can have basis in an IRA that contains no money. Opinions vary.
I've been curious about that too.. Line 14 will say that I have a basis in a tIRA ($645) but my actual tIRA has $1.. I don't think the IRS will really care about me having $1 in my tIRA, resulting from regular interest.. At least I hope they don't! Having a basis doesn't actually affect tax calculations/filings in any way if I'm only doing backdoors from now on, does it?
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

forthegoodmoments wrote: Sun Mar 12, 2023 1:37 pm
retiredjg wrote: Sun Mar 12, 2023 1:32 pm Thanks. Just curious. Some people end up with $0 on line 14. There is always a debate about whether you can have basis in an IRA that contains no money. Opinions vary.
I've been curious about that too.. Line 14 will say that I have a basis in a tIRA ($645) but my actual tIRA has $1.. I don't think the IRS will really care about me having $1 in my tIRA, resulting from regular interest.. At least I hope they don't! Having a basis doesn't actually affect tax calculations/filings in any way if I'm only doing backdoors from now on, does it?
Yes. Having a basis at the end of the year does affect calculations. If you had $1 in IRA at the end of 2022, it changes your calculations by about $1. However, it does not change your taxable amount since you have more basis than the amount converted.

Did you tell turbotax you still had $1 left in the IRA at the end of 2022?
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

retiredjg wrote: Sun Mar 12, 2023 1:47 pm
forthegoodmoments wrote: Sun Mar 12, 2023 1:37 pm
retiredjg wrote: Sun Mar 12, 2023 1:32 pm Thanks. Just curious. Some people end up with $0 on line 14. There is always a debate about whether you can have basis in an IRA that contains no money. Opinions vary.
I've been curious about that too.. Line 14 will say that I have a basis in a tIRA ($645) but my actual tIRA has $1.. I don't think the IRS will really care about me having $1 in my tIRA, resulting from regular interest.. At least I hope they don't! Having a basis doesn't actually affect tax calculations/filings in any way if I'm only doing backdoors from now on, does it?
Yes. Having a basis at the end of the year does affect calculations. If you had $1 in IRA at the end of 2022, it changes your calculations by about $1. However, it does not change your taxable amount since you have more basis than the amount converted.

Did you tell turbotax you still had $1 left in the IRA at the end of 2022?
Yes, I entered $1 for tIRA as of Dec 31, 2022.
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

forthegoodmoments wrote: Sun Mar 12, 2023 1:51 pm
retiredjg wrote: Sun Mar 12, 2023 1:47 pm
forthegoodmoments wrote: Sun Mar 12, 2023 1:37 pm
retiredjg wrote: Sun Mar 12, 2023 1:32 pm Thanks. Just curious. Some people end up with $0 on line 14. There is always a debate about whether you can have basis in an IRA that contains no money. Opinions vary.
I've been curious about that too.. Line 14 will say that I have a basis in a tIRA ($645) but my actual tIRA has $1.. I don't think the IRS will really care about me having $1 in my tIRA, resulting from regular interest.. At least I hope they don't! Having a basis doesn't actually affect tax calculations/filings in any way if I'm only doing backdoors from now on, does it?
Yes. Having a basis at the end of the year does affect calculations. If you had $1 in IRA at the end of 2022, it changes your calculations by about $1. However, it does not change your taxable amount since you have more basis than the amount converted.

Did you tell turbotax you still had $1 left in the IRA at the end of 2022?
Yes, I entered $1 for tIRA as of Dec 31, 2022.
That probably explains why you ended up with a basis on line 14 instead of $0.

Leaving $1 or other small amount in the tIRA has been suggested as a way to prevent software from making line 14 into $0. Happy accident on your part.

I think that should make your line 14 into $646 instead of $645...but maybe I gooffed it. The taxable amount is still $0, which is what matters most.
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

retiredjg wrote: Sun Mar 12, 2023 2:01 pm
forthegoodmoments wrote: Sun Mar 12, 2023 1:51 pm
retiredjg wrote: Sun Mar 12, 2023 1:47 pm
forthegoodmoments wrote: Sun Mar 12, 2023 1:37 pm
retiredjg wrote: Sun Mar 12, 2023 1:32 pm Thanks. Just curious. Some people end up with $0 on line 14. There is always a debate about whether you can have basis in an IRA that contains no money. Opinions vary.
I've been curious about that too.. Line 14 will say that I have a basis in a tIRA ($645) but my actual tIRA has $1.. I don't think the IRS will really care about me having $1 in my tIRA, resulting from regular interest.. At least I hope they don't! Having a basis doesn't actually affect tax calculations/filings in any way if I'm only doing backdoors from now on, does it?
Yes. Having a basis at the end of the year does affect calculations. If you had $1 in IRA at the end of 2022, it changes your calculations by about $1. However, it does not change your taxable amount since you have more basis than the amount converted.

Did you tell turbotax you still had $1 left in the IRA at the end of 2022?
Yes, I entered $1 for tIRA as of Dec 31, 2022.
That probably explains why you ended up with a basis on line 14 instead of $0.

Leaving $1 or other small amount in the tIRA has been suggested as a way to prevent software from making line 14 into $0. Happy accident on your part.

I think that should make your line 14 into $646 instead of $645...but maybe I gooffed it. The taxable amount is still $0, which is what matters most.
Nope, it's definitely $645 and $0 taxable :D
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

forthegoodmoments wrote: Sat Mar 11, 2023 9:05 pm In contribution amounts and chronological order of transactions:
6000 to Roth IRA (2021) *never had a Roth IRA prior to this
1500 to Roth IRA (2022)
7500 recharacterized Roth to Trad (2022) *never had a Trad IRA prior to this
So your income was too high in 2021 for a direct Roth IRA contribution? Was the recharacterization of the 2021 contribution reported on your 2021 taxes? It looks like it was not. And if it was not, that means you probably have to amend your 2021 taxes (1040X) to report the non-deductible TIRA contribution and the recharacterization.
For Traditional IRA - I figure this is for the 12000 Backdoor
It's for the conversion which is the second step of the backdoor method. But calling a conversion a "backdoor" is incorrect and confusing.
forthegoodmoments wrote: Sun Mar 12, 2023 1:15 pm With 6000 in lines 1 and 2, line 14 comes out to 645, just as you said. And with no change to federal/state tax estimates
Once you made this correction the numbers look right to me also.

Did you fill out the required recharacterization statement in TurboTax?
forthegoodmoments
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by forthegoodmoments »

Duckie wrote: Sun Mar 12, 2023 4:41 pm
forthegoodmoments wrote: Sat Mar 11, 2023 9:05 pm In contribution amounts and chronological order of transactions:
6000 to Roth IRA (2021) *never had a Roth IRA prior to this
1500 to Roth IRA (2022)
7500 recharacterized Roth to Trad (2022) *never had a Trad IRA prior to this
So your income was too high in 2021 for a direct Roth IRA contribution? Was the recharacterization of the 2021 contribution reported on your 2021 taxes? It looks like it was not. And if it was not, that means you probably have to amend your 2021 taxes (1040X) to report the non-deductible TIRA contribution and the recharacterization.
For Traditional IRA - I figure this is for the 12000 Backdoor
It's for the conversion which is the second step of the backdoor method. But calling a conversion a "backdoor" is incorrect and confusing.
forthegoodmoments wrote: Sun Mar 12, 2023 1:15 pm With 6000 in lines 1 and 2, line 14 comes out to 645, just as you said. And with no change to federal/state tax estimates
Once you made this correction the numbers look right to me also.

Did you fill out the required recharacterization statement in TurboTax?
Yes, went over the income limit for a direct Roth IRA contribution hence the recharacterization. As far as I can tell, it wasn't reported in my 2021 filing. The person who did my taxes last year maintains that I do not have to amend my return since it does not have any tax impact. I'm guessing that if IRS takes issue with this, I'll let them handle it :P

You are right. It's the conversion part of the backdoor process.

If you are referring to the written prose bit that gets attached, listing the information relevant to the recharacterization, yes! I did fill it out.

Thank you so much to you and @retiredjg for all the help and attention to detail! Not sure I would have navigated this mess properly without your help!
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haranoth
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by haranoth »

Circling back to my question (the first post) on this thread.

In May 2022 I contributed to a Roth IRA directly and income was too high, so in 2023 Feb I recharacterized that Roth IRA contribution to a non-deductible TIRA contribution and then converted the TIRA back to your Roth IRA.

Vanguard is saying, I will not get any forms this year (2023 for tax year 2022).

So, if my understanding is correct ...
Next year I will get 2 1099-Rs and I will have to file form 8606 then (in 2024).

Question : This year in 2023, I don't report anything in tax filing anywhere ?
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

The re-characterization meant that you made a non-deductible contribution to tIRA for 2022. This needs to be captured on the 2022 Form 8606. It should be just lines 1,3, and 14. And enter a comment about the re-characterizatiion.

Since there was no conversion in 2022, no conversion is reported.

I think this thread should help you figure out how to do that. viewtopic.php?p=7132064#p7132064
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

haranoth wrote: Tue Mar 28, 2023 9:23 pm In May 2022 I contributed to a Roth IRA directly and income was too high, so in 2023 Feb I recharacterized that Roth IRA contribution to a non-deductible TIRA contribution and then converted the TIRA back to your Roth IRA.

Vanguard is saying, I will not get any forms this year (2023 for tax year 2022).
You will not get 1099-Rs in 2023 for the 2023 recharacterization and conversion. You will get them next year.
So, if my understanding is correct ...
Next year I will get 2 1099-Rs and I will have to file form 8606 then (in 2024).
In 2024 you will get two 1099-Rs. The first for the 2023 Roth IRA distribution (Roth IRA recharacterization to TIRA) and the second for the 2023 TIRA distribution (TIRA conversion to Roth IRA). You will enter these on your 2023 taxes. You will also add the 2023 Form 8606 to report the 2023 conversion.
Question : This year in 2023, I don't report anything in tax filing anywhere ?
When you file your 2022 taxes you add the 2022 Form 8606 to report the now non-deductible TIRA contribution. You also add the required recharacterization statement. See my post above for details.
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Wed Feb 22, 2023 6:39 pm
haranoth wrote: Wed Feb 22, 2023 10:15 am What should be the amount to re-characterize
You tell your IRA custodian you want to recharacterize your 2022 $6000 Roth IRA contribution including any gains or losses to a TIRA. The custodian will do the figuring. If you don't already have a TIRA you will need to open one.
Is there some blog posts showing something similar with the steps for IRA re-characterization + backdoor roth conversion?
Here's one from The White Coat Investor.

With TurboTax, go to the deduction section and using the question/answer method:
  • Check both the TIRA and Roth IRA boxes.
  • You did NOT contribute to a TIRA so TT will eventually get you to the Roth IRA section.
  • You made a Roth IRA contribution of $6000 for 2022 in 2022.
  • You recharacterized the entire $6000 contribution to a TIRA. Ignore any gains or losses for this question.
  • That the now-TIRA contribution is non-deductible.
"Recharacterized" will trigger the required recharacterization statement and "non-deductible" will trigger Form 8606. The statement should say something like:
  • "On May 10, 2022, I contributed $6000 to a Roth IRA. On February 25, 2023 I recharacterized the entire $6000 contribution plus gains of $40.23 totaling $6040.23 to a TIRA because my income was too high in 2022 to contribute directly to a Roth IRA."
Form 8606 should contain just the following entries:
  • Part I
    Line 1 -- 6000 (2022 non-deductible contribution)
    Line 2 -- 0 (previous basis)
    Line 3 -- 6000
    Line 14 -- 6000 (current basis, goes on line 2 next year)
This documents your TIRA basis. If the conversion happens in 2023 it will be reported on your 2023 taxes next year.

Here's what the instructions for Form 8606 say about "Recharacterizations" starting on page 4.
  • "You made a contribution to a Roth IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a traditional IRA. Report the nondeductible traditional IRA portion of the recharacterized contribution, if any, on Form 8606, Part I. Don’t report the Roth IRA contribution (whether or not you recharacterized all or part of it) on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2022, include the amount transferred from the Roth IRA on your 2022 Form 1040, 1040-SR, or 1040-NR, line 4a. If the recharacterization occurred in 2023, report the amount transferred only in the attached statement, and not on your 2022 or 2023 tax return."
You will get a 1099-R in 2024 for the recharacterization. It should be coded "R—Recharacterized IRA contribution made for 2022 and recharacterized in 2023." in box 7. You will enter that on your 2023 TT return. If properly coded the information won't appear on your 1040 but the IRS will get the data.
Duckie and Bogleheads,

I am brand new here and have been panicking about this. I did the above (I contributed 6k directly to a roth in 2022 and then recharacterized it as a TIRA contribution in 2023, before I submitted my TT return. I filled out the form 8606 as duckie directed above. I then did a backdoor roth conversion in march 2023.

I just realized that I have about 8k sitting in a rollover IRA that has been there since 2019. I did not report it on my form 8606 for 2022 tax season. This rollover IRA only has pre-tax dollars in it. I never made nondeductible contributions to it. The situation I just described above is the first time I've done a recharacterization and conversion.

Can I fix this error by simply rolling over the rollover IRA to my employer's 401k plan?

ANY advice or counsel you could provide is much appreciated!

Thank you,
Adam
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Thu Apr 13, 2023 9:51 am I contributed 6k directly to a roth in 2022 and then recharacterized it as a TIRA contribution in 2023, before I submitted my TT return. I filled out the form 8606 as duckie directed above. I then did a backdoor roth conversion in march 2023.

I just realized that I have about 8k sitting in a rollover IRA that has been there since 2019. I did not report it on my form 8606 for 2022 tax season. This rollover IRA only has pre-tax dollars in it. I never made nondeductible contributions to it. The situation I just described above is the first time I've done a recharacterization and conversion.

Can I fix this error by simply rolling over the rollover IRA to my employer's 401k plan?
Yes. Since the conversion happened in 2023, as long as you empty the rollover IRA by 12/31/2023 you will have no pro-rata issue. You can empty it by rolling it into your 401k plan if allowed or by converting it and paying the taxes.
confused_filer
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by confused_filer »

Hi Duckie!

Thank you so much for your help in this thread. I found this thread while doing my own taxes in TurboTax. I have a question for my wife's situation if you (or anyone) can clarify:


-Me and my wife got married in 2022. I have always done backdoor roth ira and she has always done regular roth IRA in previous years.
-Post marriage, i realized our combined income was over the Roth IRA limit for my wife.
-In same year (2022), I recharacterized her original contribution to Roth into traditional IRA.
-Next, i converted her tIRA to Roth IRA (backdoor roth) a few days later

So, now i am wondering how this looks like in Turbotax online...

Under Wages in the 'IRA, 401(k), Pension Plan Withdrawals (1099-R)' section

-I input both her 1099-R forms from Vanguard.
-Roth IRA amount is 5034 (lost value from 6k) and code N(recharacterize)
-Traditional IRA form amount is 5202(increased value from 5034) and distribution code is 2(conversion)

Here are my questions:

Under 'Deduction & Credits' section:

-For my wife, do i select 'Traditional IRA' AND 'Roth IRA' ? or just Roth IRA since that is what she originally contributed to?
-For myself, i only selected traditional IRA, because i only contributed to that originally and converted.


-Originally in this area, i only selected 'Roth IRA' for her, and it asked me for Roth IRA contribution (which i put as 6k).
-Next, it asked me how much of this amount did i recharacterize to TIRA? I put 6k
-Next, it took me to a 'ROTH IRA Explanation statement', where i put total amount recharacterized as 6k and total transfered as 5034 and gave the reason for the recharacterization


So, i am confirming if what i did was correct, or i should be selecting both TIRA and roth IRA for her and some other flow will unlock in TT?
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

confused_filer wrote: Sun Apr 16, 2023 4:17 pm -Originally in this area, i only selected 'Roth IRA' for her, and it asked me for Roth IRA contribution (which i put as 6k).
-Next, it asked me how much of this amount did i recharacterize to TIRA? I put 6k
-Next, it took me to a 'ROTH IRA Explanation statement', where i put total amount recharacterized as 6k and total transfered as 5034 and gave the reason for the recharacterization


So, i am confirming if what i did was correct, or i should be selecting both TIRA and roth IRA for her and some other flow will unlock in TT?
Duckie knows more about this than I do, but this seems correct to me.
confused_filer
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by confused_filer »

retiredjg wrote: Mon Apr 17, 2023 7:01 am
confused_filer wrote: Sun Apr 16, 2023 4:17 pm -Originally in this area, i only selected 'Roth IRA' for her, and it asked me for Roth IRA contribution (which i put as 6k).
-Next, it asked me how much of this amount did i recharacterize to TIRA? I put 6k
-Next, it took me to a 'ROTH IRA Explanation statement', where i put total amount recharacterized as 6k and total transfered as 5034 and gave the reason for the recharacterization


So, i am confirming if what i did was correct, or i should be selecting both TIRA and roth IRA for her and some other flow will unlock in TT?
Duckie knows more about this than I do, but this seems correct to me.
Thanks~! I asked this because Duckie originally recommended to mention BOTH roth and traditional to the OP, but maybe that is because the OP did not recharacterize and convert in the same year?
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

confused_filer wrote: Mon Apr 17, 2023 10:05 am
retiredjg wrote: Mon Apr 17, 2023 7:01 am
confused_filer wrote: Sun Apr 16, 2023 4:17 pm -Originally in this area, i only selected 'Roth IRA' for her, and it asked me for Roth IRA contribution (which i put as 6k).
-Next, it asked me how much of this amount did i recharacterize to TIRA? I put 6k
-Next, it took me to a 'ROTH IRA Explanation statement', where i put total amount recharacterized as 6k and total transfered as 5034 and gave the reason for the recharacterization


So, i am confirming if what i did was correct, or i should be selecting both TIRA and roth IRA for her and some other flow will unlock in TT?
Duckie knows more about this than I do, but this seems correct to me.
Thanks~! I asked this because Duckie originally recommended to mention BOTH roth and traditional to the OP, but maybe that is because the OP did not recharacterize and convert in the same year?
Again, not Duckie or WCI but they don't seem to be around just now.

What is the actual wording of the question in the software? Does it start with whether you own both types or whether you contributed to both types?

Is it possible to say you own both tIRA and Roth IRA and then later say that you contributed to Roth IRA?

What you need to say is that you 1. contributed to Roth 2. recharacterized to tIRA. 3. converted to Roth.....if those are the steps you actually did.

What you need to avoid saying is that you contributed to tIRA because that is not how it happened. However, people tend to think the other way.
confused_filer
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by confused_filer »

retiredjg wrote: Mon Apr 17, 2023 10:45 am
confused_filer wrote: Mon Apr 17, 2023 10:05 am
retiredjg wrote: Mon Apr 17, 2023 7:01 am
confused_filer wrote: Sun Apr 16, 2023 4:17 pm -Originally in this area, i only selected 'Roth IRA' for her, and it asked me for Roth IRA contribution (which i put as 6k).
-Next, it asked me how much of this amount did i recharacterize to TIRA? I put 6k
-Next, it took me to a 'ROTH IRA Explanation statement', where i put total amount recharacterized as 6k and total transfered as 5034 and gave the reason for the recharacterization


So, i am confirming if what i did was correct, or i should be selecting both TIRA and roth IRA for her and some other flow will unlock in TT?
Duckie knows more about this than I do, but this seems correct to me.
Thanks~! I asked this because Duckie originally recommended to mention BOTH roth and traditional to the OP, but maybe that is because the OP did not recharacterize and convert in the same year?
Again, not Duckie or WCI but they don't seem to be around just now.

What is the actual wording of the question in the software? Does it start with whether you own both types or whether you contributed to both types?

Is it possible to say you own both tIRA and Roth IRA and then later say that you contributed to Roth IRA?

What you need to say is that you 1. contributed to Roth 2. recharacterized to tIRA. 3. converted to Roth.....if those are the steps you actually did.

What you need to avoid saying is that you contributed to tIRA because that is not how it happened. However, people tend to think the other way.
Appreciate your help here!

Here is exactly what i did:
-Maxed my wife's contribution to Roth IRA in Jan 2022
-In november, realized the mistake, called Vanguard and recharacterized
-Waited a few days, did backdoor roth

In terms of what the software/UI says, here it is:

Image

When i do the above, it does take me thru the flow of confirming i recharacterized the roth IRA and do an explanation statement, etc

The thing that tripped me up is...under the Wages portion, while i was reviewing the application, i got this screen:
Image

This is being pulled from the form i filled in later under Deductions area

Why do i need to mention conversion info in this statement? Doesnt make sense
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

I do not understand that last screen at all. It looks like they have mistakenly used the word "converted" instead of "contributed" in the narrative portion.

If you ignore the narrative and just fill in the questions, do you get what seems to be the right answer?
confused_filer
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by confused_filer »

retiredjg wrote: Mon Apr 17, 2023 11:35 am I do not understand that last screen at all. It looks like they have mistakenly used the word "converted" instead of "contributed" in the narrative portion.

If you ignore the narrative and just fill in the questions, do you get what seems to be the right answer?
Oh, i do not get any answer. It just accepts what i fill in and completes the flow for the IRA portion under wages.

This view actually did not even pop up in my first run thru, it only popped up after i completed the 'Deduction' portion where it prompted me for the recharacterize portion and that flow was more accurate/more in line with what i expected. Is there a way to compare this to 8606 form that is generated at the end and confirm everything is accurate? I can share that form here if easier.

My wife's current 8606:"

Line 1: 6000
Line 2: 0
Line 3: 6000
Line 4-
Line 5: 6000
Line 13: 5203
Line 14: 797
Line 16: 5203
Line 17: 5203

My current 8606:
Line 1: 6000
Line 2: 0
Line 3: 6000
Line 4
Line 5: 6000
Line 13: 6000
Line 14 0
Line 16/17: 6000
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retiredjg
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by retiredjg »

Both of those look right to me. Interesting that it left your wife with $797 basis to use in the future. Some software (or some people's entries) leaves $0 on line 14.

The important part is that line 18 does not indicate any taxable amount for either of you. We know that is the answer you should get.

Unless you change something, those should be the 8606 forms that get filed, but I'd check just before hitting the send button anyway. :happy
confused_filer
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by confused_filer »

retiredjg wrote: Mon Apr 17, 2023 12:47 pm Both of those look right to me. Interesting that it left your wife with $797 basis to use in the future. Some software (or some people's entries) leaves $0 on line 14.

The important part is that line 18 does not indicate any taxable amount for either of you. We know that is the answer you should get.

Unless you change something, those should be the 8606 forms that get filed, but I'd check just before hitting the send button anyway. :happy
Ah, got it! I was worried about line 14

'This is your total basis in traditional IRAs for 2022 and earlier years' - I interpreted this as it was saying i had 797 in my traditional IRA at end of 2022, and it would make conversions in the future difficult. Now i understand this is just saying this because i had a loss before the conversion

Thanks for clarifying and helping here! Really appreciate it
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Thu Apr 13, 2023 3:00 pm
alamoclark wrote: Thu Apr 13, 2023 9:51 am I contributed 6k directly to a roth in 2022 and then recharacterized it as a TIRA contribution in 2023, before I submitted my TT return. I filled out the form 8606 as duckie directed above. I then did a backdoor roth conversion in march 2023.

I just realized that I have about 8k sitting in a rollover IRA that has been there since 2019. I did not report it on my form 8606 for 2022 tax season. This rollover IRA only has pre-tax dollars in it. I never made nondeductible contributions to it. The situation I just described above is the first time I've done a recharacterization and conversion.

Can I fix this error by simply rolling over the rollover IRA to my employer's 401k plan?
Yes. Since the conversion happened in 2023, as long as you empty the rollover IRA by 12/31/2023 you will have no pro-rata issue. You can empty it by rolling it into your 401k plan if allowed or by converting it and paying the taxes.

Duckie,

Thank you so much. It looks like everything is in order for the 2023 tax season, thanks to your advice. My 2022 tax return has a recharacterization statement and it also has the following entries on 8606:
1) 6,000
2) 0
3) 6,000
14) 6,000

everything else in form 8606 for 2022 is blank, including lines 16-18. I gather that these lines (16-18) will be populated in the 8606 form for tax year 2023, as 2023 is when the conversion took place.

For tax year 2023, what should the entries in line 16-18 look like?

Also, because the Roth recharacterization was a distribution, should I expect certain lines in part III of 8606 to be populated, such as line 19 etc.?

Rollover

I was also able to rollover the balance of the Rollover IRA to my employer's 401k plan. Now, I am slated to get three 1099-R's from Vanguard: one for a Roth IRA, one for a Rollover IRA, and one for a traditional IRA.

From your previous posts, I know that for tax year 2023, the 1099-R forms for Roth IRA and Traditional IRA need to be input into turbotax, which will trigger form 8606. I am assuming the 1099-R for the Rollover IRA will need to be input as well.

Final question

From your perspective, is there anything else that needs to be done to properly report this Roth recharacterization and conversion for tax year 2023?

Again, thank you very much.
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Tue Jan 02, 2024 10:45 am My 2022 tax return has a recharacterization statement and it also has the following entries on 8606:
1) 6,000
2) 0
3) 6,000
14) 6,000

everything else in form 8606 for 2022 is blank, including lines 16-18. I gather that these lines (16-18) will be populated in the 8606 form for tax year 2023, as 2023 is when the conversion took place.
Correct. All you were reporting in 2022 was the non-deductible contribution (after the recharacterization).
For tax year 2023, what should the entries in line 16-18 look like?
  1. Line 16 will be the amount you converted in 2023.
  2. Line 17 will be the basis amount (the already taxed amount) of line 16 which will not be taxed again.
  3. Line 18 will be line 16 minus line 17 and will flow to your Form 1040 line 4b.
Also, because the Roth recharacterization was a distribution, should I expect certain lines in part III of 8606 to be populated, such as line 19 etc.?
No. Technically it is a distribution, but since it is a recharacterization (a do-over) it doesn't count for Part III.
From your previous posts, I know that for tax year 2023, the 1099-R forms for Roth IRA and Traditional IRA need to be input into turbotax, which will trigger form 8606. I am assuming the 1099-R for the Rollover IRA will need to be input as well.
Yes. If you get a 1099 for anything it HAS to be added to your return. Your numbers have to match the numbers the IRS receives or you will get a nasty letter.
From your perspective, is there anything else that needs to be done to properly report this Roth recharacterization and conversion for tax year 2023?
No.

Since you recharacterized a 2022 contribution in 2023 you do not put the recharacterized amount on your tax form. The 2023 1099-R for the Roth IRA should be coded "R—Recharacterized IRA contribution made for 2022 and recharacterized in 2023." in box 7. When you enter that on your 2023 TT return the information won't appear on your 1040 but the IRS will get the data.

As for the conversion, just make sure the 1099-R for the TIRA is entered properly.
ToddM
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by ToddM »

I have a similar issue but maybe more straightforward. I contributed $2400 to a Roth IRA in Fidelity in 2020. In Jan 2021, I discovered my income for 2020 exceeded the threshold so I contacted Fidelity, set up a trad IRA and recharacterized the 2020 contributions to it. I later file my 2020 taxes but failed to complete the correct forms in TurboTax (didn't ask for it and I didn't know). I have a 5498 showing the contributions for 2020, but I did not report anything in my 2020 filing. So I dont' have a form 8606. The next year (2022) I recieved the 5498 and a 1099-R showing the recharacterization, but didn't report anything then either.

How do I go back and correct this? Do I amend 2020, 2021 or both?
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Tue Jan 02, 2024 5:08 pm
alamoclark wrote: Tue Jan 02, 2024 10:45 am My 2022 tax return has a recharacterization statement and it also has the following entries on 8606:
1) 6,000
2) 0
3) 6,000
14) 6,000

everything else in form 8606 for 2022 is blank, including lines 16-18. I gather that these lines (16-18) will be populated in the 8606 form for tax year 2023, as 2023 is when the conversion took place.
Correct. All you were reporting in 2022 was the non-deductible contribution (after the recharacterization).
For tax year 2023, what should the entries in line 16-18 look like?
  1. Line 16 will be the amount you converted in 2023.
  2. Line 17 will be the basis amount (the already taxed amount) of line 16 which will not be taxed again.
  3. Line 18 will be line 16 minus line 17 and will flow to your Form 1040 line 4b.
Also, because the Roth recharacterization was a distribution, should I expect certain lines in part III of 8606 to be populated, such as line 19 etc.?
No. Technically it is a distribution, but since it is a recharacterization (a do-over) it doesn't count for Part III.
From your previous posts, I know that for tax year 2023, the 1099-R forms for Roth IRA and Traditional IRA need to be input into turbotax, which will trigger form 8606. I am assuming the 1099-R for the Rollover IRA will need to be input as well.
Yes. If you get a 1099 for anything it HAS to be added to your return. Your numbers have to match the numbers the IRS receives or you will get a nasty letter.
From your perspective, is there anything else that needs to be done to properly report this Roth recharacterization and conversion for tax year 2023?
No.

Since you recharacterized a 2022 contribution in 2023 you do not put the recharacterized amount on your tax form. The 2023 1099-R for the Roth IRA should be coded "R—Recharacterized IRA contribution made for 2022 and recharacterized in 2023." in box 7. When you enter that on your 2023 TT return the information won't appear on your 1040 but the IRS will get the data.

As for the conversion, just make sure the 1099-R for the TIRA is entered properly.

Duckie,

I input the 2023 1099-R for the Roth IRA into turbotax (online version). Box 1 has the gross distribution ($5,984.76). Box 2a has a taxable amount of $0.00. For box 2b, neither "taxable amount not determined" nor "total distribution" is checked (i.e. they are both blank). Box 7 is coded R. IRA/SEP/SIMPLE is NOT checked. Box 16 has $5,984.76.

TT asks me if IRA/SEP/SIMPLE box on this 1099-R is checked? I say "no, the box is blank"

TT then asks me what year is on my Vanguard 1099-R. I say "2023"

TT then tells me that "looks like you may need to amend your 2022 return"

Is this a glitch or, from your perspective, is there something wrong that needs to be amended?

As for the 1099-Rs for conversion and rollover, everything seems to be okay. No error messages.

Thank you for your guidance in this rather confusing multi-year tax issue.
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Wed Jan 10, 2024 3:42 pm I input the 2023 1099-R for the Roth IRA into turbotax (online version). Box 1 has the gross distribution ($5,984.76). Box 2a has a taxable amount of $0.00. For box 2b, neither "taxable amount not determined" nor "total distribution" is checked (i.e. they are both blank). Box 7 is coded R. IRA/SEP/SIMPLE is NOT checked.
This is an IRA so the IRA/SEP/SIMPLE box should be checked.
Box 16 has $5,984.76.
I don't understand why there is something in this box. A recharacterization is not a taxable event. Were state and/or local income taxes withheld? What state are you in?
Is this a glitch or, from your perspective, is there something wrong that needs to be amended?
The IRA box should be checked and I don't understand box 16. You don't need to amend 2022 because it is right. This 2023 1099-R is what is wrong. You probably need to contact Vanguard. At the very minimum they should correct the IRA/SEP/SIMPLE box.
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Wed Jan 10, 2024 5:34 pm
alamoclark wrote: Wed Jan 10, 2024 3:42 pm I input the 2023 1099-R for the Roth IRA into turbotax (online version). Box 1 has the gross distribution ($5,984.76). Box 2a has a taxable amount of $0.00. For box 2b, neither "taxable amount not determined" nor "total distribution" is checked (i.e. they are both blank). Box 7 is coded R. IRA/SEP/SIMPLE is NOT checked.
This is an IRA so the IRA/SEP/SIMPLE box should be checked.
Box 16 has $5,984.76.
I don't understand why there is something in this box. A recharacterization is not a taxable event. Were state and/or local income taxes withheld? What state are you in?
Is this a glitch or, from your perspective, is there something wrong that needs to be amended?
The IRA box should be checked and I don't understand box 16. You don't need to amend 2022 because it is right. This 2023 1099-R is what is wrong. You probably need to contact Vanguard. At the very minimum they should correct the IRA/SEP/SIMPLE box.
Duckie,

I called Vanguard, and they told me box 7 is checked only when dealing with the denoted IRAs (simple/sep/traditional). They said because this 1099 is dealing with a Roth IRA, the box isn't checked.

Likewise, they said line 16 is not necessarily that a distribution has been taken, but that that figure MAY be subject to taxation.

Neither answer made a ton of sense to me.

For reference, I am in Texas--no state income tax.

Thanks Duckie.
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Wed Jan 10, 2024 6:05 pm I called Vanguard, and they told me box 7 is checked only when dealing with the denoted IRAs (simple/sep/traditional). They said because this 1099 is dealing with a Roth IRA, the box isn't checked.
I took a look at the instructions for the 1099-R. (I should have done that before.) For Box 7 it states:
  • "If the IRA/SEP/SMPLE box is checked, you've received a traditional IRA, SEP, or SIMPLE distribution."
I guess they're right. Roth IRAs don't count. On your 2023 taxes when TurboTax tells you that "looks like you may need to amend your 2022 return", just ignore that suggestion and keep going. See what happens.
Likewise, they said line 16 is not necessarily that a distribution has been taken, but that that figure MAY be subject to taxation.
Being in Texas you won't have to be concerned with this line, just enter the data and ignore it.
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Wed Jan 10, 2024 6:24 pm
alamoclark wrote: Wed Jan 10, 2024 6:05 pm I called Vanguard, and they told me box 7 is checked only when dealing with the denoted IRAs (simple/sep/traditional). They said because this 1099 is dealing with a Roth IRA, the box isn't checked.
I took a look at the instructions for the 1099-R. (I should have done that before.) For Box 7 it states:
  • "If the IRA/SEP/SMPLE box is checked, you've received a traditional IRA, SEP, or SIMPLE distribution."
I guess they're right. Roth IRAs don't count. On your 2023 taxes when TurboTax tells you that "looks like you may need to amend your 2022 return", just ignore that suggestion and keep going. See what happens.
Likewise, they said line 16 is not necessarily that a distribution has been taken, but that that figure MAY be subject to taxation.
Being in Texas you won't have to be concerned with this line, just enter the data and ignore it.
Duckie,

In addition to recharacterizing my 2022 $6,000 roth IRA contribution to a traditional IRA contribution in 2023 (in March 2023, before filing my taxes), I also did a "backdoor Roth" and made a $6,500 contribution to my traditional IRA in April 2023, which resulted in $6,500.85 being converted into my Roth IRA account (i guess an .85 cent dividend accrued in the 24 hours it was sitting in the traditional IRA account).

Could it be that this transaction affects the below instructions that you provided to the original poster of this thread (reproducing below)

With TurboTax, go to the deduction section and using the question/answer method:
Check both the TIRA and Roth IRA boxes.
You did NOT contribute to a TIRA so TT will eventually get you to the Roth IRA section.
You made a Roth IRA contribution of $6000 for 2022 in 2022.
You recharacterized the entire $6000 contribution to a TIRA. Ignore any gains or losses for this question.
That the now-TIRA contribution is non-deductible.
"Recharacterized" will trigger the required recharacterization statement and "non-deductible" will trigger Form 8606. The statement should say something like:
"On May 10, 2022, I contributed $6000 to a Roth IRA. On February 25, 2023 I recharacterized the entire $6000 contribution plus gains of $40.23 totaling $6040.23 to a TIRA because my income was too high in 2022 to contribute directly to a Roth IRA."
Form 8606 should contain just the following entries:
Part I
Line 1 -- 6000 (2022 non-deductible contribution)
Line 2 -- 0 (previous basis)
Line 3 -- 6000
Line 14 -- 6000 (current basis, goes on line 2 next year)
This documents your TIRA basis. If the conversion happens in 2023 it will be reported on your 2023 taxes next year.


if so, could that be the reason for my getting the "you may need to amend" message and, if that is the case, could you tell me how to properly fill out the deduction section once both TIRA and Roth IRA boxes are checked in the turbotax online version?

You are a SAINT! THANK YOU!
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Wed Jan 17, 2024 6:28 pm In addition to recharacterizing my 2022 $6,000 roth IRA contribution to a traditional IRA contribution in 2023 (in March 2023, before filing my taxes), I also did a "backdoor Roth" and made a $6,500 contribution to my traditional IRA in April 2023, which resulted in $6,500.85 being converted into my Roth IRA account (i guess an .85 cent dividend accrued in the 24 hours it was sitting in the traditional IRA account).

Could it be that this transaction affects the below instructions that you provided to the original poster of this thread
<snip>
if so, could that be the reason for my getting the "you may need to amend" message
I don't think so. The "backdoor" contribution and conversion made in and for 2023 should not affect your 2022 taxes. Were you able to ignore that message and keep going?
and, if that is the case, could you tell me how to properly fill out the deduction section once both TIRA and Roth IRA boxes are checked in the turbotax online version?
I use the TT desktop version and I don't know if it is the same as the online version. Make sure you enter the 1099-R from the TIRA withdrawal in the income section first. Then go to the deduction section. (The 1099-R may not be available yet.)
Katietsu
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Katietsu »

The recharacterization happened in 2023. A 2023 1099-R was consequently created. Box 7 code R indicates that the recharacterization was associated with a contribution for the previous tax year, i.e. tax year 2022. Recharacterizations are reported on the tax return associated with the tax year of the original contribution. All that is to say that Turbotax is right, this particular 1099-R with a box 7 code R will only be reported on your 2022 return. It will not be reported on your 2023 return and it will not be sent to the IRS with your 2023 return. I would not have entered it into the 2023 software myself but it is good to see that Turbotax responded appropriately.

You only need to amend 2022 if you did not already accurately file 2022. Hopefully, most people report the recharacterization when filing, in this case the 2022 return, even though they have not yet received the 1099-R for the recharacterization. By the time the 1099-R with a code R is received it is often no longer useful/needed.
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Katietsu wrote: Thu Jan 18, 2024 8:45 pm The recharacterization happened in 2023. A 2023 1099-R was consequently created. Box 7 code R indicates that the recharacterization was associated with a contribution for the previous tax year, i.e. tax year 2022. Recharacterizations are reported on the tax return associated with the tax year of the original contribution. All that is to say that Turbotax is right, this particular 1099-R with a box 7 code R will only be reported on your 2022 return. It will not be reported on your 2023 return and it will not be sent to the IRS with your 2023 return. I would not have entered it into the 2023 software myself but it is good to see that Turbotax responded appropriately.

You only need to amend 2022 if you did not already accurately file 2022. Hopefully, most people report the recharacterization when filing, in this case the 2022 return, even though they have not yet received the 1099-R for the recharacterization. By the time the 1099-R with a code R is received it is often no longer useful/needed.
Katie, Duckie,

Thank you for your response. That makes sense! I did in fact report the recharacterization in the 2022 filing by way of a form 8606 and an explanation statement. In that light, should I just go ahead and answer the questions for my 2023 taxes as if I made a traditional IRA contribution only (and then converted it to roth), ignoring the 2022 roth contribtions that i recharacterized in 2023 before I filed--for example, NOT checking the Roth IRA box on the first prompt for traditional IRA and Roth IRA in the deductions & credits section of TT? Because if I check the box for Roth, I ultimately get to this question:


Enter your total Roth IRA contributions for 2023, even if you transferred or recharacterized some or all of it to a traditional IRA.

[Well, I didn't make a roth contribution for 2023--i did it in 2022, and recharacterized it in 2023 because my income is too high - so I put 0,

Then, the next question is:

How much of the zero that you contributed to your Roth IRA did you switch or recharacterize to your traditional IRA?

[I, again, put 0 - because i recharacterized my roth contributions to traditional IRA contributions in 2023 for tax year 2022, before i filed my taxes]

Is that correct from y'alls perspective?

Thank you all for your help.

I appreciate y'alls help.
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