Roth IRA Excess Contributions 2021 and 2022 (Tax Question)

[arw526]

Greetings Bogles - Seeking some clarity on a tax scenario that is causing me some confusion. Any help is appreciated.

In January 2021, I contributed $6,000 into my Roth IRA. My MAGI for the year ended up being too high, so when I was filing for my FY21 taxes in February 2022, I was notified that I needed to re- characterize most of that. I went ahead and opened a Traditional IRA, made and completed the re-characterization and converted it back to my ROTH IRA before the tax deadline. In May 2022, Vanguard issued a 5498.

In January 2023, Vanguard has issued me two 1099-R's. One of these is for my ROTH IRA, and shows a Gross Distribution, but no taxable amount. The other 1099-R is for my Traditional IRA, and shows a gross distribution, plus a taxable amount (Box 7 has Code 2, which I see shows an exception for conversions?). I am rather confused since these would have been related to my activities from 2021 tax year (which I took care of in 2022).

As an aside, I also made a $4,000 contribution to my ROTH IRA in January 2022 (before realizing I was over my MAGI in the previous year), so I know I need to re characterize that ASAP. I have not done this yet, so I know the 1099-Rs are not related to this.

What exactly do I do with these 1099's? I don't think they should be recorded anywhere on my FY22 tax return since it was related to activities in a 2021 re characterization, but they were issued, so I am just not sure what to do. I want to make sure there are no tax implications that I am missing.

Thank you.

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Did you file form 8606 with your 2021 taxes and if so what is on it?

[Duckie]

In January 2021, I contributed $6,000 into my Roth IRA. My MAGI for the year ended up being too high, so when I was filing for my FY21 taxes in February 2022, I was notified that I needed to re- characterize most of that. I went ahead and opened a Traditional IRA, made and completed the re-characterization and converted it back to my ROTH IRA before the tax deadline. In May 2022, Vanguard issued a 5498.

When you recharacterized did you include the required statement on your 2021 Form 1040? Did you include 2021 Form 8606 for the non-deductible TIRA contribution?

In January 2023, Vanguard has issued me two 1099-R's. One of these is for my ROTH IRA, and shows a Gross Distribution, but no taxable amount.

What code is in Box 7? It should be R—Recharacterized IRA contribution made for 2021 and recharacterized in 2022.

The other 1099-R is for my Traditional IRA, and shows a gross distribution, plus a taxable amount (Box 7 has Code 2, which I see shows an exception for conversions?).

Correct, conversions are coded 2.

As an aside, I also made a $4,000 contribution to my ROTH IRA in January 2022 (before realizing I was over my MAGI in the previous year), so I know I need to re characterize that ASAP.

But you knew when you filed your 2021 taxes. Why are you still waiting to do this?

What exactly do I do with these 1099's? I don't think they should be recorded anywhere on my FY22 tax return since it was related to activities in a 2021 re characterization, but they were issued, so I am just not sure what to do.

You need to report the 1099-Rs. You took a distribution from your Roth IRA when you recharacterized. Then you took a distribution from your TIRA when you converted. You total distributions will go on your 2022 Form 1040 line 4a. Line 4b will be the taxable amount, if any, from your 2022 Form 8606 line 18. If you're using tax-software you add the 1099-Rs in the income section and report the original Roth IRA contribution, recharacterization, and non-deductible TIRA contribution in the deduction section.

Take a good read of the instructions for Form 8606. The Recharacterizations section starts on page 4:

• "You made a contribution to a Roth IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a traditional IRA. Report the nondeductible traditional IRA portion of the recharacterized contribution, if any, on Form 8606, Part I. Don’t report the Roth IRA contribution (whether or not you recharacterized all or part of it) on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2022, include the amount transferred from the Roth IRA on your 2022 Form 1040, 1040-SR, or 1040-NR, line 4a. If the recharacterization occurred in 2023, report the amount transferred only in the attached statement, and not on your 2022 or 2023 tax return."