Reporting an IRA Recharacterization

Submitted by Sherry Cadenhead on Mon, 2020-04-20 19:23

Married clients contributed to their Roth IRAs in July 2019. After preparing (and filing) their 2019 Form 1040, it was discovered their income was too high for contributing to Roths. We are now recharacterizing the Roth contributions to traditional IRAs, followed by conversion to Roths. (They have no other traditional IRAs, SEPs, etc.)

It appears from reading the instructions to Form 8606, since the recharacterization occurred in 2020, rather than filing Form 8606 with the return, a statement should be attached to the return explaining the recharacterization (page 4, middle column, paragraph “2.”).

Clients prepared and filed their 2019 tax return. If my understanding is correct, as described above, clients should amend their 2019 Form 1040, with no change in the numbers, but attaching the statement explaining the recharacterization.



Submitted by Alan - IRA critic on Mon, 2020-04-20 20:12

  • Yes, an explanatory statement should have been filed with the 2019 return so the IRS would know that there was no excess contribution since the 1099R reporting the recharacterization will not be issued until next January.
  • That said, in recent years the IRS has been very slow to assess excess contributions (if at all) and have been waiting until after the 1099R forms such as this have been issued. Therefore, given the current state of chaos at the IRS due to laws changing every week, you would be doing them a favor to avoid filing the 1040X when there are no current tax dollars involved.  In the extremely slim chance they contact you sooner, all you have to do is provide a copy of your IRA statement showing the recharacterization transfer.

Submitted by David Mertz on Mon, 2020-04-20 22:13

If a recharacterization results in a nondeductible traditional IRA contribution for 2019, Form 8606 will need to be filed for that individual.  Only if the resulting traditional IRA contribution is deductible would Form 8606 not be needed for that individual.

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