Question

I realized that I've contributed to a roth IRA for the last 2 years, when I am technically not allowed to, due to the income limits. How do I fix my 2019 returns?

Forum|Forum|5 years ago
March 17, 2021
1 reply
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I talked to Schwab, and they said I can recharacterize for 2020 and 2021. They asked me to work with a tax advisor for amending my returns. I've only used TurboTax for the last 4 years. Does Turbotax provide this service?

TurboTax Online

D

DanaB27

Yes, you can amend your 2019 return to report the excess contribution. Please see How do I amend a 2019 return in TurboTax? for instructions. You will enter the Roth IRA contribution and TurboTax will calculate the 6% penalty on Form 5329 on the 2019 tax return.

You will have to pay the 6% penalty on the 2019 excess contribution on the 2020 tax return since this excess contribution was not withdrawn by December 31, 2020. When TurboTax asks if you had any prior excess contributions in the IRA contribution section you will enter the 2019 amount and TurboTax will calculate the penalty on Form 5329.

You will have to request to withdraw the 2019 excess contribution amount as a regular distribution before December 31, 2021 to avoid future penalties (no need to withdraw the earnings because it is after the due date of the 2019 return).

Please follow these steps to enter the recharacterization on your 2020 tax return (you will repeat this on your 2021 tax return):

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
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
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" (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 and you only get a screen say $0 is deductible)

You will get a 1099-R 2021 will be for the recharacterization with code R-Recharacterized IRA contribution made for 2020 and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your return. You can only report it as mentioned above.

The second 1099-R 2021 will have a code N Recharacterized IRA contribution made for 2021 and this belongs on the 2021 return. You will still have to report it as mentioned above.

If you need more help then you can also use a TurboTax Live Expert. Please see What is TurboTax Live?

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A

AT25Author

Hi Dana,

Really appreciate your reply.

I called TurboTax and they wanted to charge me $150 for each year to amend, so I will look to try to do this on my own.

I've already filed my taxes for 2020 a few weeks ago (prior to realizing this Roth IRA mistake). So I think I need to be amending 2019 and 2020. Per my talk with Schwab, they said I should be able to recharacterize 2021 to a traditional IRA, so shouldn't have any issues. (Let me know if your understanding is the same).

I will follow your steps below to review my 2019 and 2020 contributions. Do let me know if you have any additional tips/input on this. It is much appreciated.

Thanks.

O

Opus 17

Employee

Best person to help here is @dmertz

You want to be cautious in recharacterizing it as a traditional IRA. The funds will still be non-deductible, and mixing deductible and non-deductible funds in a traditional IRA creates a paperwork problem you will have to keep track of every year for the rest of your life. It may be the best thing to do but maybe not. You have until April 15 to do the withdrawal of excess contributions and not be penalized on your 2020 return, although you will still have to amend if you filed already. But you may have to amend the 2019 return first in order to have the correct information to include on your 2020 return.