How to explain recharacterization from Roth IRA to traditional IRA

Forum|Forum|3 years ago
February 25, 2023
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Hi,

I made a $6K contribution in early 2022. I realized later in the 2022 year that I exceeded the income limit and decided to recharacterized my $6k contribution to my traditional IRA. Turbo tax is asking for an explanation for recharacterization and to include amount originally converted to roth IRA, amount of gains/losses after conversion, and the amount transferred in the recharacterization.

My 1099R shows the gross distributed amount is $5056 so does that mean I had a loss of $944? Or is the $5056 the amount transferred? How do I determined the gains/losses?

Retirement Accounts

Best answer by DanaB27

Yes, it seems you had a loss of $944. But this won't get reported, you only enter it on the explanation statement.

You will enter the recharacterization when you enter the contribution to the Roth 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 “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount of $6,000
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
TurboTax will ask for an explanation statement where it should be stated that the original $6,000 minus $944 loss were recharacterized.
On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about 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)

DanaB27Answer

Yes, it seems you had a loss of $944. But this won't get reported, you only enter it on the explanation statement.

You will enter the recharacterization when you enter the contribution to the Roth 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 “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount of $6,000
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
TurboTax will ask for an explanation statement where it should be stated that the original $6,000 minus $944 loss were recharacterized.
On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about 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)