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If you have a situation where you converted an amount from a traditional, SEP or SIMPLE IRA into a Roth IRA and then later recharacterized all or part of the amount back to a traditional, SEP or SIMPLE IRA the following information and instructions may apply to you.

Per IRS Instructions for Form 8606 Nondeductible IRAs, on page 4:

Recharacterizations

Generally, you can recharacterize (correct) an IRA contribution by making a trustee-to-trustee transfer from one IRA to another type of IRA. Trustee-to-trustee transfers are made directly between financial institutions or within the same financial institution. You generally must make the transfer by the due date of your return (including extensions) and reflect it on your return. However, if you timely filed your return without making the transfer, you can make the transfer within 6 months of the due date of your return, excluding extensions. If necessary, file an amended return reflecting the transfer (see Amending Form 8606, later). Write “Filed pursuant to section 301.9100-2” on the amended return.

No recharacterizations of conversions made in 2018 or later. A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made in tax years beginning after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA.

Reporting recharacterizations. Treat any recharacterized IRA contribution as though the amount of the contribution was originally contributed to the second IRA, not the first IRA. For the recharacterization, you must transfer the amount of the original contribution plus any related earnings or less any related loss. In most cases, your IRA trustee or custodian figures the amount of the related earnings you must transfer. If you need to figure the related earnings, see How Do You Recharacterize a Contribution? in chapter 1 of Pub. 590-A. Treat any earnings or loss that occurred in the first IRA as having occurred in the second IRA. You can’t deduct any loss that occurred while the funds were in the first IRA. Also, you can’t take a deduction for a contribution to a traditional IRA if you later recharacterize the amount. The following discussion explains how to report the two different types of recharacterizations, including the statement that you must attach to your return explaining the recharacterization.

See the instructions for further clarification.

If you have received a Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. reporting the recharacterization, enter the information into TaxAct exactly as it is shown on the form.

To enter the Roth IRA conversion amount:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, then click IRA, 401(k), and pension plan distributions (Form 1099-R).
  3. Click + Add Form 1099-R to create a new copy of the form or click Edit to review a form already created.
  4. Click Quick Entry to scroll down to answer all applicable questions or click Step-by-Step Guidance to proceed with the program interview questions.

To enter the amount recharacterized on Form 8606 Nondeductible IRAs:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, then click Taxpayer/Spouse Nondeductible IRAs (Form 8606) for the taxpayer (or the spouse if any).
  3. Continue with the interview process to enter all of the appropriate information.
  4. On the screen titled Roth Conversions - Amount Recharacterized, enter the amount of the Roth conversion that was later recharacterized.

Per the previous instructions, if the recharacterized amount is equal to the converted amount, Form 8606 should not print with your return. However, if you enter a recharacterized amount less than the converted amount, the net amount converted will appear on Form 8606, Line 8 (if applicable) and also on Line 16. Your basis, if any, in the Roth conversion will then be subtracted from the net amount converted to determine the taxable portion of the conversion on Line 18.

As stated previously, a statement is required. You are able to do this in the TaxAct program as follows and the return will still be eligible for e-filing.

If the recharacterized amount is equal to the converted amount (full recharacterization):

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, then click IRA distribution explanation.
  3. Continue with the interview process to enter all of the appropriate information.
  4. On the screen titled IRA Distribution Explanation, enter the explanations needed, then click Continue.

If the recharacterized amount is less than the converted amount (partial recharacterization):

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, click Explanations and Statements to expand, then click Recharacterization explanation - Taxpayer/Spouse for you (or your spouse, if any).
  3. Continue with the interview process to enter all of the appropriate information.
  4. On the screen titled Taxpayer Recharacterization Explanation, enter the explanations needed, then click Continue.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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