IRA Recharacterization and 1099’s
In May I converted $50,000 in shares of stock in my Fidelity IRA to a new Fidelity Roth IRA. At the same time I converted $100,000 in shares of stock in my TD Ameritrade IRA to a new TD Ameritrade Roth IRA.
In November the Fidelity Roth IRA was worth $25,000 and the TD Ameritrade account was worth $50,000. I asked each broker to recharacterize each account. There were no dividends or interest payments in either Roth Account.
Fidelity sent me a 1099 for the Roth account with $25,000 in Box 1 and $0.00 in Box 2a and the Total Distribution box checked. The code in Box 7 was “R”. I did not receive any 1099 listing the original $50,000 conversion.
TD Ameritrade sent me a 1099 for the TIRA account with $100,000 in Box 1 and 2a. The code in Box 7 was “7”. TD Ameritrade sent a second 1099 for the Roth account with $50,000 in Box 1. No entry in Box 2a. The code in Box 7 was “N”.
Can anyone tell me if these forms have been filled out correctly? Does it matter that they did it differently. Am I responsible to get each company to do it correctly? When I put the information into TurboTax, it calcultes the tax correctly, or in other words it does recharacterize each conversion.
Any help would be appreciated.
Permalink Submitted by Alan Spross on Wed, 2009-02-11 23:45
The two 1099R forms from TD Ameritrade are the ones that are correct.
With respect to the Fidelity account, did you perhaps do a 2007 conversion that you did not mention? The reason this appears possible is that the 1099R for that would have been issued last year, and you did not get one showing a 2008 conversion. Further, their recharacterization 1099R is coded “R” which reflects the recharacterization of a 2007 conversion. If this did not happen, then no telling how they came up with this, but they need to correct the form you did receive and issue the other 1099R for the distribution.
Getting the right answer out of Turbo tax does not mean that you would not be getting an IRS inquiry down the road due to the mismatch of forms with what really happened.
Permalink Submitted by John Low on Thu, 2009-02-12 03:35
Thanks for your help Alan. I did not make any conversion in 2007. I now realize that I did receive another 1099 from Fidelity for the IRA account, however this was for a regular distribution I did in December for $5000. The amount in box 1 was $5000 and the distribution code was “7”. I guess I should have received a 1099 for the IRA account with $55000 in Box 1. Thanks again.
Permalink Submitted by John Low on Tue, 2010-02-23 18:41
I have received a notice from the IRS stating that I did not include the income on both my Fidelity and TD Ameritrade conversion both of which were totally recharacterized in 2008. I did receive a corrected 1099 from Fidelity so both the 1099 from Fidelity and TD Ameritrade were same; the rollover account had total amount of conversion, Box 7 was coded as “7”. The Roth accounts had the amount recharacterized in box 1 (about 1/2 of conversion amount), box 7 was coded as “N” and 2b was checked as “yes” Total distribution. The form 5498 I received showed “No holdings” in the ROTH Account as of December 31, 2008.
I did submit an 8606 – T statement, but in reviewing it, I didn’t do a very good job of providing details of the recharacterization. I did not complete any other sections of the 8606. I took a partial distribution from an inherited IRA which was 100% taxable and which I reported. I took a partial distribution from my “rollover” IRA which was 100% taxable and which I reported.
Since I did the same thing in 2009 and since the forms from Fidelity and TD Ameritrade look the same as 2008 I am interested in knowing what I did incorrectly. Where is the “loss” in market value which occured in 2008 reported, or if I had a small gain, I would assume that would be added to the value of the “Rollover IRA” account somewhere and where would that be reported. What are the key elements that need to be reported in the form 8606 explanation assuming that is my problem?
As always the help I have received in this discussion forum has been very much appreciated.
Permalink Submitted by Alan Spross on Tue, 2010-02-23 19:22
You should not file an 8606 when you do a full recharacterization, but no telling whether the original Fidelity 1099R, the 8606, or your explanatory statement caused the IRS letter.
Your responce should include copies of the correct recharacterization 1099R forms paired up with the conversion distribution 1099R and a new explanatory statement.
eg ” On 05/dd/2008 I converted $x from my Fidelity IRA and $y from my Ameritrade IRA to Roth IRAs. On 11/dd/2008 I recharacterized the full amount of each of those conversions, which were worth $y and $z respectively. Attached are copies of the 1099R forms showing both the conversion and the full recharacterization of those conversions, as well as Form 5498 showing a -0- balance in the Roth IRAs as of 12/31/08.”
Note that the conversion amount and the recharacterized amount will not match up because of the earnings calculation required. But the IRS should be used to that, and it should not cause a problem. Your explanation explains the difference in amounts. Hopefully, that will solve the problem.