IRA conversion vs recharacterization mistake

Forum|Forum|2 years ago
April 11, 2024
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In March of 2023 I had intended to recharacterize a $2000 IRA contribution to a ROTH IRA for the 2022 tax year. I thought that's what I did and reported it that way on my 2022 taxes. In 2023 I received a 1099-R for the IRA distribution made in March of 2023. As it turned out, I did not "recharacterize" my $2000 IRA contribution I "converted" it to ROTH. I can't undo the conversion and need to pay taxes on the $2000 conversion in 2023. I already paid tax in 2022 thinking I had recharacterized. What the best way to fix this? Amend my 2022 taxes or something different?

Best answer by DanaB27

No, you cannot undo a conversion.

You will need to amend your 2022 tax return to report the traditional IRA contribution and you can make it nondeductible. TurboTax will fill out Form 8606 with a basis on line 14 which will be entered on your 2023 return when you enter your conversion. Please see How do I enter a backdoor Roth IRA conversion?

If you do not have any pre-tax funds in your traditional/SEP/SIMPLE IRAs then you will be able to convert the contribution tax-free. If you have pre-tax and after-tax contribution mixed in the traditional IRA then the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part.