Contributed and Recharacterizated in 2022, Turbotax want amend tax for 2021

Question

We contributed $6000 in my husband's Roth IRA in Feb 2022, later found out we are not eligible for Roth IRA contribution. We recharacterized $6261.65 to traditional IRA in April 2022, then recharacterized all ($6087.32) to Roth IRA.

We received 2 1099 R for his account in 2022, but Turbotax is indicating we may need to amend 2021 after it asked what year is his 1099 R form, saying that his1099 R reports earning on a contribution made in 2021?

Later in Deduction & Credits section, despite us filling out all the Roth IRA conversions, It also indicated that he has a traditional IRA contribution of $6000, ask if we want to make it non-deductible.

I am confused as it was 2022 Roth IRA contribution that we recharactereized and we never directly contribute to traditional IRA? I noticed my husband box 7 is R instead of N on my form, is that the reason? What should I proceed now if it appeared Vanguard had made an error.

DanaB27 · Answer

A 2022 Form 1099-R with code R means that you recharacterized a contribution for 2021 in 2022 and it belongs on the 2021 tax return but a Form 1099-R won't make any changes to your return therefore you can ignore it. You will need to enter recharacterizations in the IRA contribution section (on your 2021 tax return).

A 2022 Form 1099-R with code N means that you recharacterized a contribution for 2022 in 2022 and it will be entered on your 2022 tax return. But you will still have to enter the recharacterization during the IRA interview.

To confirm, you made a recharacterization from Roth to traditional IRA and then converted it to Roth (not recharacterized). If this is the case then please see the instructions below.

If you recharacterize a Roth IRA to a traditional IRA then it will be like you never made a Roth IRA contribution but made a traditional IRA contribution instead, therefore, you are asked if you want to make it nondeductible.

Please follow these steps on your 2021 (for your husband) and 2022 tax returns (for you) to report the recharacterization from Roth to traditional IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “Roth IRA”
Answer ‘Yes” on the “Roth IRA Contribution” screen
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount
Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since you are doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

For 2021 your husband will have a basis on his 2021 Form 8606 line 14 that will have to be entered on your 2022 tax return.

To enter the 1099-R conversion on your 2022 tax return:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
On the "Review your 1099-R info" screen click "Continue"
Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs