Entering recharacterization and additional traditional IRA contribution for back door roth IRA
Hi,
While filing the 2021 tax year, I realized that I have not correctly filed the 2020 tax year, thus I am currently going back to amend the 2020 tax because that is the tax year I first started to do the back door Roth IRA. I've been reading numerous posts similar to my situation and has been a great help, but I want to make sure I did correctly filed from what I learned from the posts.
My scenario:
1. In 2020, I contributed to Roth IRA account as I thought I was qualified for the regular Roth IRA contribution. I made several contributions in 02/2020 - 07/2020, which total amount of Roth IRA contribution until Jul 2020 was $2220.
2. In Aug 2020, I realized that my MAGI is over the limit for Roth contribution, and learned back door Roth. I asked the brokerage to recharacterized my Roth ira contribution to traditional ira by opening my very first traditional IRA account.
Recharacterization was done in 08/2020 with an amount of $2220. when recharacterized to traditional, the total amount was $2393.16 including the earnings (from form 5498).
3. After completing the recharacterization from roth to traditional, I made an additional contribution to traditional IRA in the amount of $3780 and transferred to Roth IRA for the back door roth during 08/2020 - 10/2020.
4. Total IRA contribution in 2020 was, therefore, $6000. but 1099-R (T-IRA) shows $6168.78, probably due to earnings from recharacterization.
Below are my tax forms.
1099-R (T-IRA)
1: 6168.78
2a: 6168.78
2b: total amount not determined - X; Total distribution - X
7: 2
IRA/SEP/SIMPLE: X
1099-R (R-RA)
1: 2393.16
2a: 0
7: N
5498 (T-IRA)
1. IRA contribution: 3780
4. Recharacterized contribution: 2393.16
5. Fair market value of account: 0
5498 (R-IRA)
3. Roth IRA conversion amount: 6168.78
5. Fair market value of account: 11,862.58 (I had $1,665 in roth ira account in 2019)
10. Roth IRA contribution: 2220
After entering IRA 1099-R information in income section in TT, below is the step I entered in Dedection&Credits -> Tradtional and Roth IRA Contribution to inform my recharacterization and back door roth contribution.
Asking about T-IRA:
1. Checked both Tradition IRA and Roth IRA.
2. Is This a Repayment of a Retirement Distribution? - No
3. Tell Us How Much You Contributed:
3a.Your total 2020 traditional IRA contributions: 3780
3b. Total contribution for 2020 between January 1, 2021 and May 17, 2021: 0
4. Did You Change Your Mind? - No
5. Any Excess IRA Contributions Before 2020? - No
6. Any Nondeductible Contributions to Your IRA (T-IRA question)? - No (As I opened T-IRA account in 2020 for first time)
7. Tell Us the Value of All Your Traditional IRA Accounts: 0 (As I transferred all to roth IRA)
8. Is This a Repayment of a Retirement Distribution? - No
Asking about Roth IRA:
9. Enter Your Roth IRA Contributions: 2220
10. Tell Us How Much You Transferred: 2220 (I only entered the amount I contributed to roth, NOT including the earning which is then 2393.16. I am not sure if I need to enter 2220 or 2393.16 here)
11. Roth IRA Explanation Statement:
a. Reason for the Recharacterization: Made erroneous contribution to Roth IRA, meant to contribute to Traditional IRA.
b. Date of the Original Contribution: 02/04/2020, 03/02/2020, 04/01/2020, 05/01/2020, 06/01/2020, 07/01/2020, 07/15/2020
c. Date of the Recharacterization: 08/06/2020
d. Amount recharacterized: $2220
e.The Amount Transferred (Recharacterization plus earnings or losses): $2393.16
12. Let Us Track Your Roth IRA Basis - Yes (as I had value in roth-ira in 2019 but I did not report in previous tax, should I amend 2019 tax year too since I forgot to include 2019 roth IRA?)
13. Withdraw from Your Roth IRA Before 2020? - No
14. Enter Prior Year Roth IRA Contributions (prior to 2020) - 1665
15. Any Roth IRA Conversions (prior to 2020)? - No
16. Enter Excess Contributions (prior to 2020): 0
17. Income Too High To Deduct an IRA Contribution - Continue
This is how I entered so far.
In the Tax return form I see, form5329 - line15&16 "Excess contributions for 2020" with 169 which I assume is a correct amount due to earnings during the recharacterization and from 1099-R (6168.78 - 6000 = ~169) and form 8606 line 13 showing 6169.
I know that I may have to pay the penalty of excess IRA contribution amount. Is TT taken care of the penalty for 169, that I over contributed? Because in the form 5329, line 25 asks about additional tax for 6% penalty, it does not show any numbers. Or I do not I have to pay any penalty because I did not over contribute but it was just from the earnings? If so, I do not have to worry about the question of excess contribution in the TT? I just say No to excess contributions like questions 5 and 16i n the future including 2021 tax?
