Roth IRA to Trad IRA Recharacterization earnings amount
In the process of recharacterizing a 2024 Roth IRA contribution to a Trad IRA contribution. The earnings NIA calculation is $1,400. My understanding is both the 2024 contribution and earnings portion, aggregated to be ($9,400) will show up on a 1099R for 2025. Are the earnings deferred into the Trad IRA for tax reporting purposes or will client be reporting the earnings of $1,400 as ordinary income in 2025? Beyond updating the IRA contribution type when preparing 2024 taxes I don’t believe any other reporting has to take place in 2024?
Any clarity would be appreciated.
Permalink Submitted by Alan - IRA critic on Wed, 2025-02-19 10:34
Recharacterization does not result in any current tax due, but this recharacterization will result in Roth earnings being treated as TIRA earnings after the recharacterization. Further, if other income is high enough the TIRA contribution may not be deductible, and the 8000 will have to be reported as a non deductible TIRA contribution on Form 8606.
But if the taxpayer has no other TIRA balance, the recharacterized contribution could be converted back to Roth (back door Roth). Converting 9400 would result in taxes due on the gains (1400).
Finally, the 2024 recharacterization should be described in an explanatory statement with the 2024 return so the IRS knows that there is no excess Roth contribution if income is too high to qualify.