owe tax for recharacterization of Roth contribution to TIRA ?

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  • #5138
    RustyShackleford
    Participant

    In early 2019 I made a 2018 Roth IRA contribution (max of $6500) and shortly after recharacterized it as a TIRA contribution and took the full deduction on my 2018 tax return. I just received a 1099-R reporting a $6518.72 distribution from the Roth (original contribution plus some earnings), and distribution code ‘R’ (“recharacterized IRA contribution made for 2018 and rechracterized in 2019”). Perfectly as expected.

    Surely this is not a taxable event, right ? I can see that the $18.72 might be taxable if it remained in my Roth, but it didn’t; it was moved to the TIRA in the recharacterization.

    I can’t really even see where this would go into my 2019 tax return, or require amending my 2018 return. But Turbotax (for 2019) confused me, because I entered it there, and it said “you may have to amend your 2018 return”.

    The only tax issue I can see is that the IRS would want to know that in fact I did move that money to a TIRA, since I took a $6500 deduction in 2018. But a 5498 from the TIRA, which I should receive in May, documents that.

    #5140
    Alan S.
    Participant

    Correct, it is not taxable.

    Since you recharacterized a 2018 contribution, you should have included an explanatory statement with your 2018 return regarding the recharacterization. That’s the only way the IRS would know what you did until this month when they receive the same 1099R that you did, and in May when they receive a 5498 from the TIRA custodian showing receipt of a recharacterized contribution. If you did not include that explanatory statement, don’t worry about it now since the 1099R has been issued.

    None of this is reported on your 2019 return because it does not apply to 2019 as evidenced by the R code.

    That said, you should still enter this 1099R into Ttax because the program includes tracking your Roth IRA basis, and the recharacterization reduced your Roth IRA basis by eliminating the Roth contribution. If you knew that you were not going to use Ttax for 2020, then there would be no need to even enter this 1099R into TTax for 2019.

    • This reply was modified 6 months, 3 weeks ago by Alan S..
    • This reply was modified 6 months, 3 weeks ago by Alan S..
    #5143
    RustyShackleford
    Participant

    Thanks, Alan. I actually did include such an explanatory statement, but either Turbotax or I linked it to line 4a, whereas it seems to me that it should’ve been linked to line 32.

    Hopefully this won’t all lead to another CP2000. I’ve had a couple of those before, and they both had to do with IRA contributions (and maybe some rechracterizations) as I recall. In both instances, I convinced IRS that I’d done things correctly. I like to think that those unproductive forays reduces the chances that they’ll question me again, but I don’t know if it works that way.

    Being well over 59.5yo, I don’t think I care about Roth IRA basis anymore. So I’ll just delete the form.

    #5144
    Alan S.
    Participant

    Sounds good. It’s not real clear that explanatory statements are always read by the IRS anyway. The IRS seems to delay inquiries in favor of the 1099R/5498 forms. You shouldn’t get a CP, but as you know anything is possible.

    #7232
    Lewis-H
    Participant

    recharacterization of Roth conversions has been eliminated. However, Roth contributions can continue to be recharacterized. The recharacterization deadline is tax filing plus an extension of the year following the contribution tax year.

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