Roth IRA recharacterized to TIRA

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  • #5472
    marinakit
    Participant

    Alan S., may I pick up your brain?
    The t/p contributed $6,000 to his Roth IRA in 2019 for 2019. Early 2020, he realized that his income was too high and he was not eligible. On 04/10/2020 he asked the financial institution to recharacterize his Roth contribution to a TIRA contribution. The FMV of the contribution went down to $5,800 at the time of recharacterization.
    Questions:
    1. On his 2019 tax return, Form 8606, does he report the original $6,000 or the $5,800? We’ll include an explanation of what happened with his 2019 tax return.
    2. My understanding is that next year he should receive Form 1099-R (reporting the $5,800), specially coded to indicate that it was a recharacterization and that it pertains to 2019, correct?
    3. When will the financial institution correct Form 5498? I understand that they should do it in 2020.
    3. On 04/13/2020 he converted his TIRA to Roth (back door Roth contribution). He does not have any other TIRAs, so the conversion will not be taxable. He will receive another 1099-R for the conversion, correct?

    #5477
    Alan S.
    Participant

    1) If the contribution is non deductible, Form 8606 will show 6000 on line 1, the same amount as the original Roth contribution.

    2) Correct. The box 7 code should be “R”.

    3) The 5498 reporting the Roth contribution will not be corrected, but the Roth custodian will issue the 1099R described above. There will also be a 2020 5498 issued for the TIRA account showing receipt of a recharacterized contribution of 5800 in Box 4.

    4) Correct, a 1099R will be issued for the TIRA reporting a distribution of 5800, and a 5498 issued by the Roth custodian reporting receipt of a conversion contribution of 5800.

    #5654
    marinakit
    Participant

    Thank you, Alan!

    1. Do I understand it correctly that next year we can safely ignore Form 1099-R (coded R) for the re-characterized amount and not report it on 2020 return as it pertains to prior year and was already reported on his 2019 tax return by including an explanation of the recharacterization?
    2. I don’t see any way to claim the losses in his Roth IRA incurred due to recharacterization as he had other Roth accounts besides the one that was recharacterized, correct? If he did not have other Roth accounts could he claim the loss? In the past – may be, but after the tax reform – probably not?

    #5657
    Alan S.
    Participant

    Q 1 – Correct. The 1099R should just be checked for accuracy, and if correct retained with 2019 tax records.

    Q 2 – Yes, no way to claim the loss even if all Roth IRAs were closed because the TCJA suspended misc deductions subject to 2% floor through 2025.

    #7286
    Lewis-H
    Participant

    No. 115-97), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.

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