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Two 1099-r's one code 7 'normal distribution' and one code N for recharacterization. TurboTax is still reporting the normal distribution as taxable income.

Forum|Forum|7 years ago
June 3, 2019
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Best answer by dmertz

Go back and edit your entry of the code 7 Form 1099-R. In the follow-up, TurboTax will ask you if you recharacterized any portion of this distribution back to a traditional IRA. Answer Yes, then indicate the amount of the original conversion (perhaps the entire amount) that was recharacterized back to a traditional IRA. TurboTax will exclude the amount recharacterized from the amount reported on Form 1040 line 15b or Form 1040A line 11b.

If the code 7 Form 1099-R has an amount in box 4, this is an amount that was not originally converted to Roth unless you substituted funds from another source to complete the conversion of the entire gross amount. If you did not replace the amount withheld for taxes, that is an amount that remains distributed from the traditional IRA and is subject to tax.

Note that the amount reported in box 1 of the code N Form 1099-R is the amount transferred back to the traditional IRA, not necessarily the amount recharacterized. The amount transferred is the amount recharacterized adjusted for gain or loss while in the Roth IRA, so be sure in the follow-up to enter the amount recharacterized, not the amount transferred, if different.

D

dmertz

Employee

Why do you believe the code 7 amount is not taxable income?

R

RTW45459Author

I know that they normally would be, but because the full amount was recharacterized in the same year, there shouldn't be any tax liability

D

dmertz

Employee

Please elaborate. Was the code 7 Form 1099-R for a distribution from a traditional retirement account converted to Roth and you subsequently recharacterized that conversion or did you recharacterize something else and subsequently made a normal distribution? In other words, which transaction came first?

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RTW45459Author

Yes, the code 7 was from a traditional IRA converted to Roth and then subsequently recharacterized. The normal distribution came first, the recharacterization three months later, plus or minus, same year

D

dmertzAnswer

Employee

Go back and edit your entry of the code 7 Form 1099-R. In the follow-up, TurboTax will ask you if you recharacterized any portion of this distribution back to a traditional IRA. Answer Yes, then indicate the amount of the original conversion (perhaps the entire amount) that was recharacterized back to a traditional IRA. TurboTax will exclude the amount recharacterized from the amount reported on Form 1040 line 15b or Form 1040A line 11b.

If the code 7 Form 1099-R has an amount in box 4, this is an amount that was not originally converted to Roth unless you substituted funds from another source to complete the conversion of the entire gross amount. If you did not replace the amount withheld for taxes, that is an amount that remains distributed from the traditional IRA and is subject to tax.

Note that the amount reported in box 1 of the code N Form 1099-R is the amount transferred back to the traditional IRA, not necessarily the amount recharacterized. The amount transferred is the amount recharacterized adjusted for gain or loss while in the Roth IRA, so be sure in the follow-up to enter the amount recharacterized, not the amount transferred, if different.

R

RTW45459Author

The question that follows "What Did You Do with the Money from ....you need to answer "Moved the money to another retirement account (or returned it to the same retirement account". Then you are asked "Rolled Over all of this money to another traditional IRA or other retirement account (or returned it to the same account)" I mis-interpreted that option because it was NOT a rollover, but 'returned it to the same account' fixes the problem.