Question

Taxed incorrectly - Recharacterized prior year Roth IRA contribution and made Backdoor Roth conversion

Forum|Forum|3 years ago
February 21, 2023
2 replies
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Hello. On March 14, 2022 I recharacterized $4,643 from my Roth to a Traditional IRA. This is from the original $6k that I had contributed in early 2021 to the Roth and had to recharacterize after my capital gains put me over the income limit.

The $4,643 then grew to $8,109 in a quick span and I converted that amount to my Roth.

Then finally I contributed $6k to my Traditional for 2022 and did the back door conversion to my Roth.

In total $14,109 went from my Traditional to Roth in 2022 and my 1040 shows I am being taxed on $8,109, which is the total minus my $6k contribution... but I should only be getting taxed on the gains from the $4,643 to $8,109 which is $3,466- is that right? If so, how do I correct this info on TurboTax?

I have the two 1099R's imported and my Traditional and IRA contributions show $6k on the Deductions & Credits section. If I try to select that I contributed to a Roth and recharaterized the $4,643 then it says I have an excess IRA contribution when I generate the 1040.

TurboTax Deluxe Online

fanfare

Employee

TurboTax is correct.

In IRAs, and Roth IRAs your gains and losses don't matter.

@irainvestor

D

dmertz

Employee

Was your $6,000 traditional IRA contribution for 2022 a nondeductible contribution? If so, did you enter it so that TurboTax would add it to your basis in nondeductible traditional IRA contributions?

If it was deductible, the deduction on Schedule 1 line 20 has reduced your taxable income.

I

irainvestorAuthor

It was a non-deductible contribution with after tax dollars yes. I tried to enter the re-characterization but it ended up telling me that I over-contributed to an IRA and that I would be taxed until I took the money out which is incorrect.

This is what my 8606 looks like. I paid for the TurboTax expert and someone went over my files and couldn't figure out a way to do this and they told me that according to the IRS anything over $6k is automatically counted as interest or something like that. So I'm very confused. I have since filed my taxes through turbo tax.

D

dmertz

Employee

I assume that your $6,000 traditional IRA contribution that resulted from recharacterizing the $6,000 Roth IRA contribution that you made was nondeductible, but line 2 of your 2022 Form 8606 is not showing any basis carried in from your 2021 Form 8606 line 14.

When you went back through the IRA contribution section of 2021 TurboTax you should have indicated that you made a $6,000 Roth IRA contribution and that you subsequently recharacterized $6,000 to be a traditional IRA contribution instead. Your explanation statement for the recharacterization should have indicated that the recharacterization of $6,000 was accomplished with a loss-adjusted transfer of $4,643 from the Roth IRA to the traditional IRA. (You recharacterized $6,000 of your 2021 contribution, not $4,643.) Assuming that this was a nondeductible traditional IRA contribution, the result would have been $6,000 on lines 1 and 14 of your 2021 Form 8606 and would be the file that you needed to transfer into 2022 TurboTax to begin your 2022 tax return.