How to show re-characterized amount on TurboTax
Easy question: I have a Vanguard 1099R showing 3 rollover IRA transactions (TIRA to Roth; Distribution codes 07). One of these was re-characterized before year-end (different 1099R – Distribution code N) but the amount is different from that on the other 1099R because of a distribution.
On TurboTax, do I show:
A) Only the two un-re-characterized transactions leaving the other as a wash?
B) Enter all the data on both 1099Rs and allow for a greater re-characterization than was originally distributed?
C) Other?
Kind regards, James
Permalink Submitted by Alan Spross on Tue, 2009-01-27 18:57
I don’t use Turbo tax, but if you follow the questions you should be prompted for the correct entry.
If you want to check the results, the tax due should be the same if you just enter the two conversions as in (A). But the reporting would not be correct, because you should be prompted to enter all 3 conversions and the recharacterization of one of them, so that all 1099R info is accounted for.
Also, look for the opportunity to attach a narrative statement explaining the recharacterized conversion. This is requested by the IRS to help them follow what you did, ie which conversion was recharacterized and if you recharacterized it partially or in full.
Note that the amount that goes back into the TIRA unded Code N does not affect the amount of your tax. It will be a different amount than your actual conversion because it is adjusted for earnings or losses.
Permalink Submitted by James Mitchell on Wed, 2009-01-28 03:21
Thanks, Alan!
TurboTax is a bit confusing with this process. Because you can re-characterize (up to tax filing) in the next year, the TT forms allow you to state the amount of a re-characterization without having a 1099R. Since I did everything in 2008, I actually had all the 1099Rs. In essence, I show the re-characterized amount twice; once as a minus in the original conversion and again (on a different form) with the re-conversion. I suppose IRS will line up the right ducks at the right time…
The ability to convert and then re-characterize is a great feature and allows very precise conversions with exactly the desired tax consequence!
Kind regards, James
Permalink Submitted by Alan Spross on Wed, 2009-01-28 03:55
That sounds correct because if you were doing a paper return in this situation, you would add up all the 1099R amounts on line 15a and only the remaining conversions would be shown on Form 8606 with the taxable amount transferred to 15b. This might be something for you to check if you can view the final 1040 before printing and filing.
I note you used the term “reconversion”. Since these were all done in 2008, I hope your conversions were for a “different amount” because you cannot actually reconvert the same amount (meaning the same traceable assets) again in the same year or within 30 days of the recharacterization. This is a mostly a problem for someone converting all or most of their Roth IRA instead of a smaller portion of a large TIRA account.
If you did all 3 conversions before the recharacterization, no problem because that is proof that these were all different amounts or assets.
Permalink Submitted by James Mitchell on Wed, 2009-01-28 14:23
Alan, you are quite right. I was careless in my use of the terms convert and characterize. There was no re-conversion (yet); only 3 conversions and 1 re-characterization.
I will do the re-conversion on Feb 2nd…
James