Where do I list on 1040 the Recharacterization?

Submitted by Norman Rifkind on Sun, 2013-02-17 00:10

Let me explain what I have done and then ask my questions. In 2010 I converted my IRA to a Roth, hypothetically in the amount of $50,000 and deferred paying the tax to 2011 and 2012. In 2011 I paid the tax on $25,000 listing that income on line 15b. For 2012, I have listed the remaining income of $25,000 also on line 15b.

Because I no longer had an IRA in 2010 and 2011 due to the Roth conversion, I was able to do a backdoor Roth (Due to income restrictions, I cannot donate to a Roth)of $6000 per year (I am over 50). I also did a backdoor Roth in early 2012 (contributed $6000 and immediately converted the $6000 to a Roth). However, my company terminated its Pension and Profit Sharing Plans later in 2012 so I took them and deposited them in my IRA account. Because I had substantial pre-tax money (from the Pension and Profit Sharing) and $6000 of after tax money (from the IRA contribution and then Roth conversion), I recharacterized the $6000 IRA contribution and received a check from my IRA for $6600–with $600 represnting gains.

I have now received two 1099-R: one for $6000 from my IRA (presumably for the conversion) and another from my Roth for $6600.

Where on 1040 do I list as income the $600 gain, and where do I list the 10% penalty? Do I combine the $600 gain on line 15b with my $25,000 income from the 2010 IRA to Roth conversion?



Submitted by Alan - IRA critic on Sun, 2013-02-17 01:25

What is the box 7 coding on your 1099R for the distribution? Also, your description cannot be exactly correct. A recharacterization is a tax free transfer, not a distribution. Therefore, it sounds like you did not do a recharacterization, just a distribution from your Roth IRA. Please clarify and make sure the 6,600 distribution shows the Roth IRA account.



Submitted by Norman Rifkind on Sun, 2013-02-17 01:31

The Box 7 coding is “N” for the distribution from my Roth. The facts stated above are accurate, but my terminology may be wrong. I did a backdoor conversion in 2012. So, to do that I contributed $6000 to my IRA and then converted it promptly to a Roth. Thereafter, I had my pension and profit sharing deposited into my IRA. The 6000 plus gains was then recharacterized from the Roth back to the IRA; and then I received a distribtion from the IRA. I know I must pay tax on the 600 gain plus a 10% penalty….but it was worth it; otherwise I would have had pretax and aftertax money in my IRA which would have been a hassle once I started taking distributions.



Submitted by Alan - IRA critic on Sun, 2013-02-17 02:33

Getting there, but still more info needed. Your 1099R coded N is for the recharacterized conversion back to the TIRA. You only mentioned one other 1099R and indicated it was for the conversion to the Roth (will show TIRA account). Now if you removed the TIRA contribution in 2012 (check for 6,600), you should have a 3rd 1099R. But if you did not have the contribution returned until 2013, you will NOT have a 1099R for that now. It will be issued next January. When did you remove the contribution?



Submitted by Norman Rifkind on Sun, 2013-02-17 02:48

Removed the contribution in Janurary 2013. Does that mean this is a taxable event for 2013, and not 2012? What, if anything, do I do with the two 1099-Rs I received?



Submitted by Alan - IRA critic on Sun, 2013-02-17 03:18

  • OK. For your 2012 return, you will NOT need Form 8606 or any other additional forms. The final installment from your 2010 conversion goes on line 15b plus the $600 of gains on the distribution of your 2012 TIRA contribution. The $60 early withdrawal penalty goes on line 58. It is taxable for 2012 because the contribution was made in 2012.
  • Most of the reporting will be in the form of a lengthy explanatory statement. That statement should read as follows: “On xx/xx/2012 I made a traditional IRA contribution of 6,000 and converted 6,000 to a Roth IRA. On yy/yy/2012 I recharacterized the entire Roth conversion, which was then valued at (see N coded 1099R for the figure) back to my traditional IRA. On zz/zz/2013 I received a return of my original traditional IRA contribution of 6,600 including $600 in earnings”.
  • Note that you will receive the final 1099R for the return of contribution next year. It will be coded to apply to 2012 (code P) and you explained this with your 2012 return, so you can ignore next year’s 1099R Coded P.
  • Too bad you did the PS rollover. If you cannot roll your pre tax TIRA balance back into an employer plan, any conversions done from here on will be mostly all taxable.


Submitted by Alan - IRA critic on Sun, 2013-02-17 03:47

I omitted the line 15a amounts, although they are not critical. Technically, your 2012 line 15a amounts should include the original conversion (6,000) plus the Box 1 figure for the recharacterization 1099R. 15a will not show the 2010 conversion installment OR the distribution you did in 2013 because neither occurred in 2012.



Submitted by Norman Rifkind on Sun, 2013-02-17 14:11

Thanks so much for your help. Terrific website. And, I assume, that if the check I received from my IRA in January 2013 was for $6800, the additional gain of $200 (on top of the $600) will be reported as income in 2013?



Submitted by Alan - IRA critic on Sun, 2013-02-17 17:42

No, the entire amount of gain earned on your contribution for both the time it was in the TIRA and the time in the Roth IRA is taxable in 2012 because the original contribution was made in 2012. Therefore, $800 would be taxable in 2012 and the 10% penalty would be $80 unless you qualified for a penalty exception.



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