File taxes – Conversion, Re-characterization and RMD in the same year

Submitted by n2b on Thu, 2016-03-17 19:41

I converted from my TIRA to Roth in August 2015 but re-characterized both mutual funds and their earnings back to the TIRA in November 2015. I am 84 years old and have been taking out the RMD every year since I became eligible. In years past I have been calculating the pro-rated non-deductible contributions with the RMD when filing my tax returns by submitting Form 8606
This year Vanguard sent me the 1099-R with the RMD and the conversion amounts of the two mutual fund with their respective values in Box 1 (Gross Distribution) and Box 2 (Taxable Amt) and Code 7 (Normal Distribution) in Box 7. Since the re-characterization was done in the same year Vanguard has also included in the same 1099-R the re-characterization amounts equal to the values plus earnings of the two mutual funds. These latter values were in Box 1, a zero in Box 2 and an “N” in Box 7
How do I reconcile these multiple entries when I file so that only the calculated RMD from Form 8606 gets included on line 15 in Form 1040 and not the conversion amounts from the set of entries shown in the 1099-R marked Code 7. Can I ignore the Mutual Fund entries marked with code 7 since they are not to be taxed due to their re-characterization?
I understand that I have to attach a statement with my tax return. What are the proper wordings to be used to satisfy the IRS

Thanks for your help



Submitted by Alan - IRA critic on Thu, 2016-03-17 19:51

Do you use a tax program like Turbotax or tax act or file a paper return?

Submitted by n2b on Thu, 2016-03-17 23:18

Yes I use a tax program called Taxwise On Line. I have the option to either file on line or print it out and mail a paper return

Submitted by Alan - IRA critic on Thu, 2016-03-17 23:46

  • Most tax programs will have you enter the conversion even though you recharacterized it, and enter the recharacterization. Vanguard doubled up on the 1099R including both the TIRA distributions and the Roth recharacterization, but you would treat this as 3 separate 1099R forms, one for the conversion, one for the RMD, and the other for the recharacterization. You should be left with only the taxable portion of the RMD on line 15b of Form 1040. 15a should show the total of all 3 transactions (roughly double the converted amount plus the RMD amount). Form 8606 should only show the RMD with your taxable amount and the amount of basis remaining on line 14.
  • While ideally you would include the explanatory statement, if you cannot figure out how to enter it in Taxwise, you can still e file without it and avoid a paper return.. Since the recharacterization was done in the same year as the conversion, the IRS has their copy of the 1099R and can see what you did.
  • It helps if Taxwise provides a forms view, so you can review the results of your input to see if it looks right.

Submitted by n2b on Fri, 2016-03-18 02:33

 I’ll split the information from Vanguard into three 1099-Rs as you suggested. Yes Taxwise has a Forms view to review the return. It also has a means to include blank forms with explanatory notes in the E-File. Just to make sure I’ll include a note also. Thanks for your guidance. Appreciate your help.

Submitted by Alan - IRA critic on Fri, 2016-03-18 02:44

Here is a sample for the explanatory statement:  “On xx/xx/2015 I converted $y to my Roth IRA, and on zz/zz/2015 I recharacterized 100% of this conversion, which was then worth $d back to my traditional IRA.”

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