Handling Recharacterization on tax return
I had to recharacterize most of my 2007 Roth IRA contribution to my traditional IRA due to piercing the income ceiling. I did this in January 2008, filed form 8606 with my 2007 return and attached a note to my return explaining it all. In January 2009 I received a 1099 from my carrier indicating a distribution from the Roth IRA, in the amount of the recharacterization. The form contains a coding indicating it is a recharacterization.
My question is this: I have listed this distribution on line 15a of my 2008 1040. I have left line 15b blank since the distribution is not taxable. Is this correct? Do I need to do anything else? Should I again attach a note to the return?
Thanks for any advice anyone can provide
Permalink Submitted by Anonymous (not verified) on Sun, 2009-02-22 02:26
You should not list the recharacterized contribution on line 15a of your 2008 return because the recharacterization applies to a 2007 contribution AND you explained this with a statement on your 2007 return. You can simply ignore that 1099R as long as Box 7 contains a code reflecting the recharacterization applies to a prior year (2007). No new or additional statement is required and of course 15b is blank with respect to this 1099R.
Permalink Submitted by Paul Markovsky on Sat, 2015-04-04 18:59
I am getting conflicting info about how to handle recharacterization.My situation is simple: Did a TIRA to Roth IRA conversion in 2014 and recharacterization back to TIRA in 2015.Doing my tax reporting using TAXACT. Since the recharacterization is a last minute decision I already have the 1099 form filled for the initial conversion.When in TAXACT I clicked on the Form 8606 link and the program asked me if I did any recharacterization and I entered the amount from the form 1099 into 8606 form and the taxes due went down. But now I am reading that I am not supposed to file 8606 form.So how do I properly report the RIRA conversion and its recharacterization?a) Should I go to the 1099 form and change ‘Taxable amount’ to zero and attach an explanation?orb) Do I delete the entire 1099 for that RIRA conversion and attach an explanation that there was a conversion that I later recharacterized? Thanks.
Permalink Submitted by Alan - IRA critic on Sun, 2015-04-05 15:34
Form 8606 is not filed if you totally recharacterized your conversion, and there is no other reason to file the form.Not sure how Tax Act handles recharacterizations, but most likely you enter it and then enter the recharacterization. That may produce a screen for the explanatory statement. The return should look the same if you simply did not enter the conversion 1099R at all. You could try that to get your tax amount, and then determine if you get that same amount by entering both the conversion and recharacterization. Either way, you should include an explanatory statement showing the amount and date of the conversion and the same for the recharacterization. Neither the conversion OR the recharacterization amount should show up on lines 15a and 15b of the return.
Permalink Submitted by Paul Markovsky on Sun, 2015-04-05 17:33
Are you saying this conversion is not supposed to be on the tax return at all?In this case I can just remove it (as if I never entered it) and just supply an explanation that there was a conversion which was recharacterized.Would that be OK?Thanks.
Permalink Submitted by David Mertz on Mon, 2015-04-06 16:12
The instructions for Form 1040 lines 15a and 15b indicate that gross distribution amounts of both the conversion and the recharacaterization should appear on line 15a, but the amount recharacterized should not be included on line 15b. So there *should* be a slight effect on your tax return, but you will not be taxed on the portion of the conversion that was recharacterized because it won’t appear on line 15b.
Permalink Submitted by Alan - IRA critic on Sun, 2015-04-05 23:00
Yes, that would be OK but be sure to include the explanatory statement that you recharacterized the full amount of the conversion.
Permalink Submitted by Alan - IRA critic on Mon, 2015-04-06 16:53
Dmx, regarding line 15a, we can split the difference. The 8606 Inst, p 4 example indicate that the conversion amount should go on 15a, but not the recharacterization amount because that occurred in the following year. But if OP cannot get the conversion to show on 15a, due to the required statement included, there should be no problem with the return.
Permalink Submitted by David Mertz on Mon, 2015-04-06 20:47
I agree. I neglected to account for the fact that the recharacterization was in 2015, not 2014.
Permalink Submitted by Paul Markovsky on Wed, 2015-04-08 22:48
Actually got a very detailed response from Taxact support.They advised to put 1099R information and then to fill out form 8606 indicating the recharacterization and to fill out the explanation form. If the amount for the recharcterization matches the amount converted – the form 8606 is not generated.
Permalink Submitted by Paul Markovsky on Tue, 2015-04-14 01:47
One last question, please:On the explanation, do I need to indicate the value of the Roth IRA at the time of the recharacterization? The value was less than the amount converted to ROTH. Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2015-04-14 03:01
Indicate the amount of the conversion that you recharacterized, and what that amount was worth (after earnings adjustment) when the transfer was made back to the TIRA. The last figure will agree with the amount shown on the 1099R you will receive next January reporting the recharacterization. If the Roth IRA held ONLY the converted amount then the amount transferred back will empty the Roth IRA.