Turbotax guide for Roth Recharacterization and conversion

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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

Katietsu wrote: Thu Jan 18, 2024 8:45 pm 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.
I disagree about not entering the 1099-R. Yes, the recharacterization was reported on the 2022 return and will not appear on the 2023 return. But the 2023 1099-R data still needs to be entered in the software. The IRS will get a copy of that form and will expect it to be attached to the return. If it is not there alamoclark might get a CP2000 in a couple of years. I say "might" because the box 2a taxable amount shows as $0 and so might not be an issue. But even if the IRS ignores it, nobody knows in advance that they will.
alamoclark wrote: Mon Jan 22, 2024 12:28 pm 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?
Enter the two 2023 1099-Rs into the income section. The first for the Roth IRA recharacterization to the TIRA which affected 2022 but happened in 2023 and the second for the 2023 TIRA to Roth IRA conversion. Then in the deduction section check both the TIRA and Roth IRA boxes, since you do own both. Mine starts with the TIRA so answer the questions in a way that shows you contributed $6,500 (or whatever) to the 2023 TIRA, it was non-deductible, and that you converted $??? to the Roth IRA. See what happens. If it gives you fits go back and uncheck the Roth IRA box and see what happens.

It's too bad you are doing this using the online version because you can't see your actual forms so you don't really know what they show. Can you see the forms after you pay and before you file the return so you can make corrections then?
Katietsu
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Katietsu »

Duckie wrote: Mon Jan 22, 2024 4:49 pm But the 2023 1099-R data still needs to be entered in the software. The IRS will get a copy of that form and will expect it to be attached to the return.
I do not believe this is true. The 1099-R for the recharacterization will not be part of the 2023 electronic file sent by Turbotax and should not be sent with a 2023 return when sent manually.

There are a few box 7 codes that work this way where a 2023 dated form contains information to be used on a 2021 or 2022 tax return, for instance. Though, I always found the reporting of recharacterizations done in the next calendar year to be one of the oddest.

There is no harm in entering it as long as you answer all of the Turbotax questions correctly as Turbotax will just not include the 1099-R on the tax form or as part of the e-file submission.
Last edited by Katietsu on Tue Jan 23, 2024 12:52 am, edited 1 time in total.
Katietsu
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Katietsu »

alamoclark wrote: Mon Jan 22, 2024 12:28 pm 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.
These answers look correct to me. Sometimes, even though you know what the final form should look like, getting the right answers and boxes checked in the software can be a challenge.
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Mon Jan 22, 2024 4:49 pm
Katietsu wrote: Thu Jan 18, 2024 8:45 pm 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.
I disagree about not entering the 1099-R. Yes, the recharacterization was reported on the 2022 return and will not appear on the 2023 return. But the 2023 1099-R data still needs to be entered in the software. The IRS will get a copy of that form and will expect it to be attached to the return. If it is not there alamoclark might get a CP2000 in a couple of years. I say "might" because the box 2a taxable amount shows as $0 and so might not be an issue. But even if the IRS ignores it, nobody knows in advance that they will.
alamoclark wrote: Mon Jan 22, 2024 12:28 pm 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?
Enter the two 2023 1099-Rs into the income section. The first for the Roth IRA recharacterization to the TIRA which affected 2022 but happened in 2023 and the second for the 2023 TIRA to Roth IRA conversion. Then in the deduction section check both the TIRA and Roth IRA boxes, since you do own both. Mine starts with the TIRA so answer the questions in a way that shows you contributed $6,500 (or whatever) to the 2023 TIRA, it was non-deductible, and that you converted $??? to the Roth IRA. See what happens. If it gives you fits go back and uncheck the Roth IRA box and see what happens.

It's too bad you are doing this using the online version because you can't see your actual forms so you don't really know what they show. Can you see the forms after you pay and before you file the return so you can make corrections then?
'

Duckie,

I can certainly purchase the desktop software. Do you use basic or premier?
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Wed Jan 24, 2024 11:52 am I can certainly purchase the desktop software. Do you use basic or premier?
I use TurboTax Deluxe desktop for $70 which includes one state download, but state e-file is $20 extra. The desktop version costs more than online but I prefer the ability to see my forms as I go.
alamoclark
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

alamoclark wrote: Mon Jan 22, 2024 12:28 pm
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.

Duckie, Katie,

I downloaded the desktop TT. Looked at my form 8606-T. It doesn't look right and I can't figure out why.

Line 1: $6,500 (my 2023 contribution to traditional IRA which was later converted to roth)
Line 2: $6,000 (from 2022 form 8606 line 14 - total basis - represents the recharacterized roth contribution from 2022 (i think))
Line 3: $12,500
Line 4: blank
Line 5: $12,500
Lines 6-12: blank
Line 13: $12,202
Line 14: $298
Line 15
a: 0
b: blank
c: 0
Line 16-18: BLANK!

I have followed the steps and put in all my 1099R's - 3 of them (the rollover 1099, the roth 1099, and the traditional 1099). It doesn't appear that the Roth recharacterization is an issue as the 1099R summary has $5,985 (which is the amount on my roth 1099) listed as a "Recharacterization of prior year contributions or conversions. Need not be reported on tax return."

Do either of you have any thoughts as to what I need to do to fix this? My understanding is line 16-18 needs to be populated with the amount I converted from traditional to roth in 2023, which would be $6,500.

Thank y'all for your help and guidance.
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Thu Feb 08, 2024 3:19 pm I downloaded the desktop TT. Looked at my form 8606-T. It doesn't look right and I can't figure out why.

Line 1: $6,500 (my 2023 contribution to traditional IRA which was later converted to roth)
Line 2: $6,000 (from 2022 form 8606 line 14 - total basis - represents the recharacterized roth contribution from 2022 (i think))
Line 3: $12,500
Line 4: blank
Line 5: $12,500
Lines 6-12: blank
Line 13: $12,202
Line 14: $298
Line 15
a: 0
b: blank
c: 0
Line 16-18: BLANK!

I have followed the steps and put in all my 1099R's - 3 of them (the rollover 1099, the roth 1099, and the traditional 1099).
Okay, in Wages & Income you entered:
  • A 1099-R for the $5,985 Roth IRA recharacterization to the TIRA which happened in 2023 but was for 2022.
  • A 1099-R for the $12,202 TIRA conversion to the Roth IRA which happened in 2023.
  • A 1099-R for the ~$8K TIRA rollover to the 401k.
It doesn't appear that the Roth recharacterization is an issue as the 1099R summary has $5,985 (which is the amount on my roth 1099) listed as a "Recharacterization of prior year contributions or conversions. Need not be reported on tax return."

Do either of you have any thoughts as to what I need to do to fix this? My understanding is line 16-18 needs to be populated with the amount I converted from traditional to roth in 2023, which would be $6,500.
Part of the issue is that between the original Roth IRA contribution made in 2022 and the TIRA conversion(s) in 2023 you lost money. That complicates things. However, there still should be entires in lines 16 to 18.

I did a dummy return and the Form 8606 looked like this:
  • Part I
    Line -- 6500 (2023 non-deductible contribution)
    Line 2-- 6000 (basis from line 14 last year)
    Line 3 -- 12,500
    Line 4 -- 0 or blank
    Line 5 -- 12,500
    Line 6 -- 0
    Line 7 -- 0 or blank (conversions, while technically distributions, don't go on this line)
    Line 8 -- 12,202 (amount converted, transfers to line 16)
    Line 9 -- 12,202
    Line 10 -- 1.000
    Line 11 -- 12,202 (non-taxable portion of conversion, transfers to line 17)
    Line 12 -- 0 or blank
    Line 13 - 12,202
    Line 14 -- 298 (basis, because you lost money between the original 2022 Roth IRA contribution and the 2023 TIRA conversion(s), this can be used later)
    Line 15a -- 0 or blank
    Line 15b -- 0 or blank
    Line 15c -- 0 or blank

    Part II
    Line 16 -- 12,202 (transfers to 1040 line 4a)
    Line 17 -- 12,202
    Line 18 -- 0 (transfers to 1040 line 4b)
As you see, I was able to get entires on Form 8606 lines 16 to 18. I don't know why your Form 8606 lines are blank. I wonder if it has something to do with the 1099-R that reported the recharacterization. On both your Roth IRA 1099-R (the one that reports the recharacterization) and your TIRA 1099-R (the one that reports the conversion), what is in all the boxes?

Numbers from Taxable IRA Distribution Worksheet (Tax IRA Dist-T) found in Forms mode on the left side above the "Form W-2" link.
  • Line 1 -- 6500
    Line 2 -- 6000
    Line 3 -- 12,500
    Line 4 -- 0
    Line 5 -- 0
    Line 6 -- 12,202
    Line 7 -- 12,202
    Line 8 -- 1.00000
    Line 9 -- 12,202
    Line 10 -- 0
    Line 11 -- 0
    Line 12 -- 2
    Line 13a -- 0
    Line 13b -- blank
    Line 13c -- 0
I got these numbers by answering questions in the Deductions & Credits section. Under Traditional and Roth IRA Contributions:
  1. Select the kind of IRA(s) you own, I checked both TIRA and Roth IRA
  2. Not a repayment
  3. Contributed $6500 to TIRA for 2023
  4. Did not change my mind
  5. No excess
  6. Yes, there were non-deductible contributions
  7. $6000 basis as of 12/31/2022
  8. $0 TIRA value as of 12/31/2023
  9. Did not make a Roth IRA contribution for 2023
  10. Yes, had a Roth IRA from before
  11. No, don't bother to track basis now
  12. No excess Roth IRA contributions
  13. Income too high to deduct
  14. Yes, make part of my IRA contribution non-deductible, $6500
If I have the details from the 1099-Rs maybe I can replicate the problem.
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Mesonoxian
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Mesonoxian »

Hello sorry to re-add to this, but someone mentioned just replying to this thread instead of making a new one.

For 2023 I was already maxing my Roth IRA up to $4900 (vanguard) however realized our combine income went over the qualification for a Roth IRA. I recharacterized this amount in October ($4900). From then on contributed the remaining ($1600) to a backdoor Roth to maximize $6500. I wish I had just recharacterize it instead of breaking it up like this.

During this time I also did a 401k conversion to a ROTH IRA that I know I will pay taxes on.

I had two 1099-Rs sent to me. Each one of us for a rollover and one for Roth.
The problem I'm facing is how to use turbo tax to characterize all of these?

I have a 1099-R roll over 37,000
A 1099-R Roth IRA 4,900

The below is the instructions that were posted and my questions are in bold.
https://www.whitecoatinvestor.com/ira-r ... rizations/

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. (Would I say roth IRA contribution $4900?
You recharacterized the entire $6000 contribution to a TIRA. Ignore any gains or losses for this question. Likewise would I list just the recharacterized amount so $4900
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 I would do $4900 to a Roth IRA. On XXX Date, I recharacterized the entire $4900 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) This would be 4900
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.

After this portion I would then do backdoor rothira of just the remaining $1600 correct?
https://www.whitecoatinvestor.com/how-t ... -turbotax/

In the step for reporting contribution to traditional ira I would put in $1600?

Thanks sorry if this was confusing.
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

Mesonoxian wrote: Sat Feb 10, 2024 5:49 pm For 2023 I was already maxing my Roth IRA up to $4900 (vanguard) however realized our combine income went over the qualification for a Roth IRA. I recharacterized this amount in October ($4900). From then on contributed the remaining ($1600) to a backdoor Roth to maximize $6500.
When did you contribute the $1600 to the TIRA? If you converted the $1600 and the $4900, when did you? Month and year?
During this time I also did a 401k conversion to a ROTH IRA that I know I will pay taxes on.

I had two 1099-Rs sent to me. Each one of us for a rollover and one for Roth.
The problem I'm facing is how to use turbo tax to characterize all of these?

I have a 1099-R roll over 37,000
A 1099-R Roth IRA 4,900
Okay, you did three things in 2023. You:
  1. Contributed $1600 to a TIRA for 2023. When was the contribution? That amount was non-deductible. Did you convert this in 2023?
  2. Contributed $4900 to your Roth IRA and recharacterized it to a TIRA in 2023. Unknown what the gains/losses were between contribution and recharacterization. Did you convert the now non-deductible $4900 contribution to your Roth IRA in 2023?
  3. Rolled/converted $37,000 from your 401k to your Roth IRA.
You received a 1099-R for the 401k rollover/conversion to Roth IRA and a 1099-R for the Roth IRA recharacterization to the TIRA.

When you file your 2023 taxes you will add Form 8606 for the 6500 non-deductible contributions and $37,000 conversion. Any other conversions? You will also include the required recharacterization statement.
After this portion I would then do backdoor rothira of just the remaining $1600 correct?
The backdoor Roth method is two steps. The non-deductible contribution to TIRA and the conversion to Roth IRA. I know you did the first step. I am unsure if you did the second step in 2023.
In the step for reporting contribution to traditional ira I would put in $1600?
No. You would enter $6500 because you recharacterized the $4900 from a Roth contribution to a TIRA contribution.
Thanks sorry if this was confusing.
Very confusing.
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Mesonoxian
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Mesonoxian »

Duckie wrote: Sat Feb 10, 2024 6:46 pm
Mesonoxian wrote: Sat Feb 10, 2024 5:49 pm For 2023 I was already maxing my Roth IRA up to $4900 (vanguard) however realized our combine income went over the qualification for a Roth IRA. I recharacterized this amount in October ($4900). From then on contributed the remaining ($1600) to a backdoor Roth to maximize $6500.
When did you contribute the $1600 to the TIRA? If you converted the $1600 and the $4900, when did you? Month and year?
so beginning of 2023 in January I made contributions to the vanguard Roth Ira 541.66 monthly. It wasn't until 10/23 did I realize that our income might exceed MAGI so I called vanguard and they helped me recharacterize this in November 2023 of $4970.64. This was then converted to a Roth IRA at $5,110.99. So a gain of $140.35.
My ROTH IRA 1099-R is 4970.64

During this time I also changed employers and rollover my Fidelity 401k to Vanguard in November and did a 401k conversion to a Roth IRA as this year I would make the least amount. (30,036.14) (November 2023).

Since I only had $4970.64 I still wanted to make out the $6500. So I did contribution to TIRA in November ($929.00) and December $929.22 and called vanguard to roll them over into a Roth IRA (backdoor)

Vanguard combined my November conversions together (30,036.14 +929.00) $30,969.63
So my Roll over IRA 1099-R was $37,010.51 (929.89 Conversion in December, 30,969,63 (the 929 backdoor in November and the conversion of 30,036) as well as $5,110.99 the recharacterization of (4,970.64 + gains)




During this time I also did a 401k conversion to a ROTH IRA that I know I will pay taxes on.

I had two 1099-Rs sent to me. Each one of us for a rollover and one for Roth.
The problem I'm facing is how to use turbo tax to characterize all of these?

I have a 1099-R roll over 37,000
A 1099-R Roth IRA 4,900
Okay, you did three things in 2023. You:
  1. Contributed $1600 to a TIRA for 2023. When was the contribution? That amount was non-deductible. Did you convert this in 2023?
Correct, November and December I did convert them in 2023
[*]Contributed $4900 to your Roth IRA and recharacterized it to a TIRA in 2023. Unknown what the gains/losses were between contribution and recharacterization. Did you convert the now non-deductible $4900 contribution to your Roth IRA in 2023?
The gains were as above 140.35 for the Recharacterization. There was small gains from the November (4.49) and December (0.67)
[*]Rolled/converted $37,000 from your 401k to your Roth IRA.[/list]
You received a 1099-R for the 401k rollover/conversion to Roth IRA and a 1099-R for the Roth IRA recharacterization to the TIRA.
However, the question was Vanguard combined the Conversion that will be taxable $30,036.14 with my "Backdoor Roth IRA" that is nontaxable ($6,500). Don't I have to split this somehow?
When you file your 2023 taxes you will add Form 8606 for the 6500 non-deductible contributions and $37,000 conversion. Any other conversions? You will also include the required recharacterization statement.
I did receive 1099-R from Fidelity Gross Distribution 30,823.70 with taxable amount 118.77. Line 7 Distribution code G.
1099 R from Vanguard Roll over IRA 37,010.51, taxable amount 37,010.51 Line 7 : distribution code 2
1099 R Vanguard Roth IRA $4970.64, taxable amount $0. Line 7 : distribution code N

I guess I'm happy to learn this on my own or do you think I should reach out to a CPA?
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Duckie
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

Mesonoxian wrote: Sun Feb 11, 2024 11:55 am so beginning of 2023 in January I made contributions to the vanguard Roth Ira 541.66 monthly. It wasn't until 10/23 did I realize that our income might exceed MAGI so I called vanguard and they helped me recharacterize this in November 2023 of $4970.64. This was then converted to a Roth IRA at $5,110.99. So a gain of $140.35.
My ROTH IRA 1099-R is 4970.64
How much did you actually contribute to the Roth IRA before you recharacterized it? Not how much was it worth but how much money had you contributed before you stopped? You are only allowed to contribute $6500 for 2023. If the IRA gains or loses value that does not change the amount you can contribute. I would think Vanguard would stop your contributions at $6500, but what with the recharacterization and all the other moving parts something might have been missed. You need to check this.
Since I only had $4970.64 I still wanted to make out the $6500. So I did contribution to TIRA in November ($929.00) and December $929.22 and called vanguard to roll them over into a Roth IRA (backdoor)
$4970.64 + $929.00 + $929.22 = $6828.86 which is over the $6500 contribution limit. Please explain your numbers.
However, the question was Vanguard combined the Conversion that will be taxable $30,036.14 with my "Backdoor Roth IRA" that is nontaxable ($6,500). Don't I have to split this somehow?
You report the entire amounts converted. That includes the pre-tax contributions (the ~31K Vanguard Rollover IRA which came from the Fidelity 401k) and the non-deductible contributions plus or minus earnings (the $4970 Vanguard TIRA from the recharacterized Roth IRA and the $1600 from the intentional backdoor Roth). When you report the $6500 non-deductible contribution on Form 8606 it is automatically deducted from the taxable amount.
I did receive 1099-R from Fidelity Gross Distribution 30,823.70 with taxable amount 118.77. Line 7 Distribution code G.
1099 R from Vanguard Roll over IRA 37,010.51, taxable amount 37,010.51 Line 7 : distribution code 2
1099 R Vanguard Roth IRA $4970.64, taxable amount $0. Line 7 : distribution code N
So you rolled the 401k into a Rollover IRA first and then converted it instead of rolling directly from the 401k to the Roth IRA. That's fine. It's just an extra 1099-R that needs to be entered.
I guess I'm happy to learn this on my own or do you think I should reach out to a CPA?
That is going to depend on how much you actually contributed to the Roth IRA before recharacterization and to the TIRA before conversion. If the total is more than $6500 you will have to remove the excess contribution, preferably before you file your 2023 taxes. Vanguard can do it but it's just one more complication. I really hope you only contributed $6500 total and that I am reading this wrong.
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Mesonoxian
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Mesonoxian »

Duckie wrote: Sun Feb 11, 2024 3:25 pm How much did you actually contribute to the Roth IRA before you recharacterized it? Not how much was it worth but how much money had you contributed before you stopped? You are only allowed to contribute $6500 for 2023. If the IRA gains or loses value that does not change the amount you can contribute. I would think Vanguard would stop your contributions at $6500, but what with the recharacterization and all the other moving parts something might have been missed. You need to check this.
Sorry you are right. The actual amount contributed before recharacterization was $4641.78. This was then followed by Backdoor Roth for 929.00 and 929.22 for a total of $6500.
$4970.64 + $929.00 + $929.22 = $6828.86 which is over the $6500 contribution limit. Please explain your numbers.
You're correct the above were the actual numbers.
You report the entire amounts converted. That includes the pre-tax contributions (the ~31K Vanguard Rollover IRA which came from the Fidelity 401k) and the non-deductible contributions plus or minus earnings (the $4970 Vanguard TIRA from the recharacterized Roth IRA and the $1600 from the intentional backdoor Roth). When you report the $6500 non-deductible contribution on Form 8606 it is automatically deducted from the taxable amount.
Okay got it. That is starting to make more sense to me.
So you rolled the 401k into a Rollover IRA first and then converted it instead of rolling directly from the 401k to the Roth IRA. That's fine. It's just an extra 1099-R that needs to be entered.
I see okay thanks
That is going to depend on how much you actually contributed to the Roth IRA before recharacterization and to the TIRA before conversion. If the total is more than $6500 you will have to remove the excess contribution, preferably before you file your 2023 taxes. Vanguard can do it but it's just one more complication. I really hope you only contributed $6500 total and that I am reading this wrong.
Yes, I only contributed $6500 total.
alamoclark
Posts: 10
Joined: Thu Apr 13, 2023 9:44 am

Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Thu Feb 08, 2024 6:13 pm
alamoclark wrote: Thu Feb 08, 2024 3:19 pm I downloaded the desktop TT. Looked at my form 8606-T. It doesn't look right and I can't figure out why.

Line 1: $6,500 (my 2023 contribution to traditional IRA which was later converted to roth)
Line 2: $6,000 (from 2022 form 8606 line 14 - total basis - represents the recharacterized roth contribution from 2022 (i think))
Line 3: $12,500
Line 4: blank
Line 5: $12,500
Lines 6-12: blank
Line 13: $12,202
Line 14: $298
Line 15
a: 0
b: blank
c: 0
Line 16-18: BLANK!

I have followed the steps and put in all my 1099R's - 3 of them (the rollover 1099, the roth 1099, and the traditional 1099).
Okay, in Wages & Income you entered:
  • A 1099-R for the $5,985 Roth IRA recharacterization to the TIRA which happened in 2023 but was for 2022.
  • A 1099-R for the $12,202 TIRA conversion to the Roth IRA which happened in 2023.
  • A 1099-R for the ~$8K TIRA rollover to the 401k.
It doesn't appear that the Roth recharacterization is an issue as the 1099R summary has $5,985 (which is the amount on my roth 1099) listed as a "Recharacterization of prior year contributions or conversions. Need not be reported on tax return."

Do either of you have any thoughts as to what I need to do to fix this? My understanding is line 16-18 needs to be populated with the amount I converted from traditional to roth in 2023, which would be $6,500.
Part of the issue is that between the original Roth IRA contribution made in 2022 and the TIRA conversion(s) in 2023 you lost money. That complicates things. However, there still should be entires in lines 16 to 18.

I did a dummy return and the Form 8606 looked like this:
  • Part I
    Line -- 6500 (2023 non-deductible contribution)
    Line 2-- 6000 (basis from line 14 last year)
    Line 3 -- 12,500
    Line 4 -- 0 or blank
    Line 5 -- 12,500
    Line 6 -- 0
    Line 7 -- 0 or blank (conversions, while technically distributions, don't go on this line)
    Line 8 -- 12,202 (amount converted, transfers to line 16)
    Line 9 -- 12,202
    Line 10 -- 1.000
    Line 11 -- 12,202 (non-taxable portion of conversion, transfers to line 17)
    Line 12 -- 0 or blank
    Line 13 - 12,202
    Line 14 -- 298 (basis, because you lost money between the original 2022 Roth IRA contribution and the 2023 TIRA conversion(s), this can be used later)
    Line 15a -- 0 or blank
    Line 15b -- 0 or blank
    Line 15c -- 0 or blank

    Part II
    Line 16 -- 12,202 (transfers to 1040 line 4a)
    Line 17 -- 12,202
    Line 18 -- 0 (transfers to 1040 line 4b)
As you see, I was able to get entires on Form 8606 lines 16 to 18. I don't know why your Form 8606 lines are blank. I wonder if it has something to do with the 1099-R that reported the recharacterization. On both your Roth IRA 1099-R (the one that reports the recharacterization) and your TIRA 1099-R (the one that reports the conversion), what is in all the boxes?

Numbers from Taxable IRA Distribution Worksheet (Tax IRA Dist-T) found in Forms mode on the left side above the "Form W-2" link.
  • Line 1 -- 6500
    Line 2 -- 6000
    Line 3 -- 12,500
    Line 4 -- 0
    Line 5 -- 0
    Line 6 -- 12,202
    Line 7 -- 12,202
    Line 8 -- 1.00000
    Line 9 -- 12,202
    Line 10 -- 0
    Line 11 -- 0
    Line 12 -- 2
    Line 13a -- 0
    Line 13b -- blank
    Line 13c -- 0
I got these numbers by answering questions in the Deductions & Credits section. Under Traditional and Roth IRA Contributions:
  1. Select the kind of IRA(s) you own, I checked both TIRA and Roth IRA
  2. Not a repayment
  3. Contributed $6500 to TIRA for 2023
  4. Did not change my mind
  5. No excess
  6. Yes, there were non-deductible contributions
  7. $6000 basis as of 12/31/2022
  8. $0 TIRA value as of 12/31/2023
  9. Did not make a Roth IRA contribution for 2023
  10. Yes, had a Roth IRA from before
  11. No, don't bother to track basis now
  12. No excess Roth IRA contributions
  13. Income too high to deduct
  14. Yes, make part of my IRA contribution non-deductible, $6500
If I have the details from the 1099-Rs maybe I can replicate the problem.
Duckie,

Here are the details from my 1099s

2023 1099-R (Rollover)

1. $8,417.62
2a. $0.00
2b. taxable amount not determined- not checked
total distribution - checked
3-6. blank
7. distribution code: G
IRA/SEP/SIMPLE - checked
8-15. blank
16. $8,417.62
17-19. blank

2023 1099-R (Roth)
1. $5,984.76
2a. $0.00
2b. taxable amount not determined - not checked
total distribution - not checked
3-6. blank
7. distribution code R
IRA/SEP/SIMPLE - not checked (we've discussed this in a past post and it's correct I believe, as this is dealing w/ a roth)
8-15. blank
16. $5,984.76
17-19. blank

2023 1099-R (Traditional)
1. $12,201.53
2a. $12,201.53
2b. taxable amount not determined - checked
total distribution - checked
3-6. blank
7. distribution code: 2
IRA/SEP/SIMPLE: checked
8-15. blank
16. $12,201.53
17-19. blank

Also, this is how my Tax IRA Dist-T is filled out
1. $6,500
2. $6,000
3. $12,500
4. blank
5. $12,202
6. blank
7. $12,202
8. 1.000000
9. blank
10. $12,202
11. $12,202
12. blank
13a. 0
13b. blank
13c. 0

It looks like something is definitely wrong with my worksheet--so I must have done something wrong somewhere. In particular, the issue appears to be that my line 5 and line 6 are opposite of yours--that is, my line 5 has $12,202 and line 6 is blank, whereas your line 5 is blank and your line 6 has $12,202. This seems to have an effect on line 10-11 as well, as mine have $12,202 and yours are blank. Also, your line 12 has a 2, whereas mine is blank.

With respect to the deductions and credits section, I filled out my form exactly as you did up to $6,000 IRA basis (right after Q about nondeductible contributions). My TT does not, however, ask me about TIRA value from 2023 at that point. It skips directly to "did you make a Roth contribution for 2023?" Then, I have the same questions, which I fill out exactly the same, up until "income too high to deduct an IRA contribution." At that point, I do not get prompted to answer whether or not I want to make part of my IRA contribution non-deductible. It just brings me straight to the deduction summary and then spits me back out to the main menu.

Please let me know if there is any other information you need, or if there is anything I can do to assist you. Thank you again for your help.
User avatar
Duckie
Posts: 9745
Joined: Thu Mar 08, 2007 1:55 pm

Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Mon Feb 12, 2024 12:53 pm It looks like something is definitely wrong with my worksheet--so I must have done something wrong somewhere.
Yeah, there's a glitch somewhere. I had updated TT yesterday and had a fit making your return work this morning. So I started over completely with a new dummy return. I entered all three 1099-Rs as you reported in the Wages & Income section -- Retirement Plans -- IRAs. These are the screens that showed after the entries (a lot of them are irrelevant but I'm showing EVERYTHING).
  1. First new 1099-R $12,201.53 TIRA conversion to Roth IRA where I got the "Good News you don't owe extra taxes on this
  2. No the 1099-R is not for an employer contribution
  3. No I did not inherit this IRA
  4. I moved the money to another account, I did a combination, I converted 12,201.53 to roth
  5. I did not put in HSA
  6. Not a Qualified Disaster withdrawal -- done with this 1099-R
  7. Second new 1099-R $5,984.76 Roth recharacterization to TIRA
  8. Double checking - No the IRA box is blank
  9. Verifying Box 2a and 2b are blank
  10. No not a public safety officer
  11. Year on 1099-R -- 2023
  12. May need to amend 2022 return -- done with this 1099-R
  13. Third new 1099-R $8,417.62 TIRA to 401k rollover
  14. Money not rolled to Roth IRA
  15. No didn't go in HSA
  16. Not qualified disaster distribution -- done with this 1099-R
  17. No prior disaster
  18. Yes, non-deductible IRA contributions
  19. $6000 basis as of 12/31/2022
  20. $0 value of TIRA as of 12/31/2023
  21. 2023 Income Summary
Deductions & Credits section -- Traditional & Roth IRA contributions
  1. Checked both TIRA and Roth IRA boxes
  2. Yes contributed to TIRA
  3. No not a repayment
  4. Contributed $6500, and $0 in 2024
  5. Did not change my mind
  6. Wrote No on retirement plan coverage, don't know if would make a difference
  7. No excess IRA contributions
  8. Yes, made and tracked non-deductible contributions
  9. IRA basis $6000 as of 12/31/2022
  10. No Roth IRA contributions for 2023
  11. Yes Roth before 2023
  12. No don't bother the track Roth basis now
  13. No excess Roth IRA contributions
  14. Yes make part of my IRA deductions non-deductible, $6500
  15. IRA summary
When I did all that I got the following on the Form 8606. And I mean I got ALL the numbers on the form, no blank lines 6 thru 12 and no Tax IRA Dist-T worksheet showing. Maybe the update I did yesterday changed things.
  • Part I
    Line 1 -- 6500
    Line 2 -- 6000
    Line 3 -- 12,500
    Line 4 -- blank
    Line 5 -- 12,500
    Line 6 -- 0
    Line 7 -- 0
    Line 8 -- 12,202
    Line 9 -- 12,202
    Line 10 -- 1.000
    Line 11 -- 12,202
    Line 12 -- 0
    Line 13 -- 12,202
    Line 14 -- 298
    Line 15a -- 0
    Line 15b -- blank
    Line 15c -- 0

    Part II
    Line 16 -- 12,202
    Line 17 -- 12,202
    Line 18 -- 0
Form 1040 line 4a is $20,620 and has Rollover next to it. It includes the $12,202 and the $8,418 from the TIRA to 401k rollover. Line 4b is $0.
Maybe update TurboTax and create a new return and see what happens.
alamoclark
Posts: 10
Joined: Thu Apr 13, 2023 9:44 am

Re: Turbotax guide for Roth Recharacterization and conversion

Post by alamoclark »

Duckie wrote: Mon Feb 12, 2024 4:48 pm
alamoclark wrote: Mon Feb 12, 2024 12:53 pm It looks like something is definitely wrong with my worksheet--so I must have done something wrong somewhere.
Yeah, there's a glitch somewhere. I had updated TT yesterday and had a fit making your return work this morning. So I started over completely with a new dummy return. I entered all three 1099-Rs as you reported in the Wages & Income section -- Retirement Plans -- IRAs. These are the screens that showed after the entries (a lot of them are irrelevant but I'm showing EVERYTHING).
  1. First new 1099-R $12,201.53 TIRA conversion to Roth IRA where I got the "Good News you don't owe extra taxes on this
  2. No the 1099-R is not for an employer contribution
  3. No I did not inherit this IRA
  4. I moved the money to another account, I did a combination, I converted 12,201.53 to roth
  5. I did not put in HSA
  6. Not a Qualified Disaster withdrawal -- done with this 1099-R
  7. Second new 1099-R $5,984.76 Roth recharacterization to TIRA
  8. Double checking - No the IRA box is blank
  9. Verifying Box 2a and 2b are blank
  10. No not a public safety officer
  11. Year on 1099-R -- 2023
  12. May need to amend 2022 return -- done with this 1099-R
  13. Third new 1099-R $8,417.62 TIRA to 401k rollover
  14. Money not rolled to Roth IRA
  15. No didn't go in HSA
  16. Not qualified disaster distribution -- done with this 1099-R
  17. No prior disaster
  18. Yes, non-deductible IRA contributions
  19. $6000 basis as of 12/31/2022
  20. $0 value of TIRA as of 12/31/2023
  21. 2023 Income Summary
Deductions & Credits section -- Traditional & Roth IRA contributions
  1. Checked both TIRA and Roth IRA boxes
  2. Yes contributed to TIRA
  3. No not a repayment
  4. Contributed $6500, and $0 in 2024
  5. Did not change my mind
  6. Wrote No on retirement plan coverage, don't know if would make a difference
  7. No excess IRA contributions
  8. Yes, made and tracked non-deductible contributions
  9. IRA basis $6000 as of 12/31/2022
  10. No Roth IRA contributions for 2023
  11. Yes Roth before 2023
  12. No don't bother the track Roth basis now
  13. No excess Roth IRA contributions
  14. Yes make part of my IRA deductions non-deductible, $6500
  15. IRA summary
When I did all that I got the following on the Form 8606. And I mean I got ALL the numbers on the form, no blank lines 6 thru 12 and no Tax IRA Dist-T worksheet showing. Maybe the update I did yesterday changed things.
  • Part I
    Line 1 -- 6500
    Line 2 -- 6000
    Line 3 -- 12,500
    Line 4 -- blank
    Line 5 -- 12,500
    Line 6 -- 0
    Line 7 -- 0
    Line 8 -- 12,202
    Line 9 -- 12,202
    Line 10 -- 1.000
    Line 11 -- 12,202
    Line 12 -- 0
    Line 13 -- 12,202
    Line 14 -- 298
    Line 15a -- 0
    Line 15b -- blank
    Line 15c -- 0

    Part II
    Line 16 -- 12,202
    Line 17 -- 12,202
    Line 18 -- 0
Form 1040 line 4a is $20,620 and has Rollover next to it. It includes the $12,202 and the $8,418 from the TIRA to 401k rollover. Line 4b is $0.
Maybe update TurboTax and create a new return and see what happens.
Duckie, I think it worked!!! the only difference is, in my form 8606-T, it has the following entries

1. 6,500
2. 6,000
3. 12,500
4 - blank
5. 12,500
6. blank
7. blank
8. blank
9. blank
10. X
11. blank
12. blank
13. 12,202
14. 298
15a. 0
15b. blank
15c. 0

Pt. II

16. 12,202
17. 12,202
18. 0*


I answered the same prompts as you and actually got a Tax IRA Dist-T:
1. 6,500
2. 6,000
3. 12,500
4. 0
5. 0
6. 12,202
7. 12,202
8. 1.000000
9. 12,202
10. 0
11. 12,202
12. 0
13A. 0
13b. blank
13c. 0

In my form 1040, line 4a has 20,620 with ROLLOVER under it. 4b has 0.

The net effect of all this seems to be that the tax forms are correct, at least in terms of substance. My only concern is the form that the information is taking--specifically, the fact lines 6-7 are blank and the fact that lines 8-9 do not have $12,202 listed in form 8606 and instead are blank. What are your thoughts?
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Duckie
Posts: 9745
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Re: Turbotax guide for Roth Recharacterization and conversion

Post by Duckie »

alamoclark wrote: Tue Feb 13, 2024 1:05 pm I think it worked!!!
<snip>
The net effect of all this seems to be that the tax forms are correct, at least in terms of substance. My only concern is the form that the information is taking--specifically, the fact lines 6-7 are blank and the fact that lines 8-9 do not have $12,202 listed in form 8606 and instead are blank. What are your thoughts?
Your Form 8606 is correct. Lines 6 through 12 being blank is normal in software. The numbers that do show are the right numbers. You're good to go. However, if you update TurboTax things might change, so to be safe check this form again right before you file the return.
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