Hi- Here’s an advanced question:

Had a client that had made a prior year contribution in 2020 to a Roth IRA of $7000 (client >50) . His CPA informed him that he can make a 2019 Trad IRA and deduct it; his goal is now to max his prior year 2019 Trad IRA contribution as $7000. We then had ppwk for the client to re characterize the prior year 2019 Roth as a traditional. Since the Client had made his prior year contribution, the market fell and so did the contents of the Roth- the prior close amount (the amount reported as the re characterization by the custodian) shows as follows:

IRA Contributions 2019 2020
Maximum contribution 7000.00 7000.00
Contribution to date 7000.00 0.00
Remaining contribution** 0.00 7000.00
**includes pending deposits, if any
Please disregard if client is ineligible to make contributions
This information includes only activity that has occurred at TD Ameritrade

Retirement Activity Totals 2020
Roth contribution prior year $7,000.00
Recharacterization prior year $5,621.96

My questions:

A) What is the proper way to fix in order for the client to max his 2019 Trad IRA section and contribution of $7000? The 5498 looks like it would show a prior yr Roth 7k contribution, BUT show a $5621.96 Recharacterization. If he contributes the $1378.04 difference as a 2019 prior yr contribution, I believe hed be over contributing?

B) Since the above will show on his statements, what is the proper documentation that he should show if ever audited that his goal was to merely ‘undo’ his 2019 prior yr Roth Contribution and effectively make a $7000 prior yr 2019 Trad IRA contribution?

Thank you for helping!

-Sean