Recharacterization, RMD – spanning 2020 to 2022

Submitted by Dana Evans on Fri, 2023-02-10 16:39

Client is 73 years old in 2020. On December 31, 2020, client did NOT own a Traditional IRA therefore all TIRA balances are zero as of 12/31/2020 and no RMD for 2021.

February 2022, client recharacterized a 2021 $7000 ROTH contribution to a TIRA (opening the TIRA at this time).
We showed the full $7000 contribution as deductible TIRA on the 2021 Form 1040. Unfortunately, no statement was included with 2021 Form 1040 explaining the recharacterization.

In 2023, client received 2022 Form 1099-R for $5982, distribution code R (for recharacterized contribution made for 2021 and recharacterized in 2022).

The first RMD was issued in 2022 (calculation includes the $7000 balance for 2021 recharacterized contributions).

I understand that the client cannot claim any loss from the recharacterization. Do we need to show the 2022 Form 1099-R with code R anywhere on the 2022 tax return? Should we attach a statement to the 2022 return explaining the 2021 recharacterization?

As always, thank you in advance!



Submitted by Alan - IRA critic on Fri, 2023-02-10 19:23

  • Although the 2021 return should have included an explanatory statement regarding the recharacterized contribution and did not, it should still not be reported on line 4 of the 2022 return since the R coding applies to 2021. The IRS should be able to determine what happened from the 1099R and 2021 deduction, but in the unlikely case where they inquire the explanatory statement can be provided then.
  • The 12/31/2021 TIRA balance for purposes of determining the 2022 RMD should have been 5982, the actual amount transferred, instead of 7000 on which the deduction is based. Reg 1.408-8 QA8 (b) explains this in the context of recharacterized conversions which of course are no longer allowed, but the same methodology applies to recharacterized regular contributions. Using the amount actually transferred eliminates the problem of trying to determine exactly what the balance would have been on 12/31. In this case the 2022 RMD actually distributed was more than the actual RMD by a small amount.
  • An explanatory statement with the 2022 return is probably a waste of time since the recharacterization applies to 2021 (R code), but it can’t hurt.

Submitted by Dana Evans on Fri, 2023-02-10 20:58

Thank you Alan-iracritic! I don’t know how you have time to answer all these questions, but we sure do appreciate you and your attention to detail! Have a blessed day!

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