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If you have a situation where you made a contribution to a traditional IRA and later recharacterized part or all of it to a Roth IRA, the following information and instructions may apply to you.

Per the IRS Instructions for Form 8606, page 3:

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 this characterization, 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.

You made a contribution to a traditional IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a Roth IRA.

In the TaxAct program, you will enter the net traditional IRA contribution amount (original contribution minus recharacterized amount). If you recharacterized only part of the contribution, report the nondeductible traditional IRA portion of the remaining contribution, if any, on Form 8606, Part I. If you recharacterized the entire contribution, don’t report the contribution on Form 8606. In either case, attach a statement to your return explaining the recharacterization.

  • If the characterization occurred in 2018, include the amount transferred from the traditional IRA on Form 1040, line 4a; or Form 1040NR, line 17a.
  • If the characterization occurred in 2019, report the amount transferred only in the attached statement, and not on your 2018 or 2019 tax return.

[The other three types of recharacterizations are not listed here as they do not apply to this situation.]

See the instructions for a detailed example on page 4 for further clarification.

To enter or review your IRA contribution entries:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click IRA Contributions in the Federal Quick Q&A Topics menu to expand the category and then click the applicable sub-section. 
  3. The program will proceed with the interview questions for you to enter or review the appropriate information

To enter or review Form 1099-R Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc:

  1. Click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand the category and 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 Review to review a form already created 
  4. Click Quick Entry or Step-by-Step Guidance
    1. If you select Quick Entry, complete the form to match your paper copy of Form 1099-R and be sure to scroll down to complete all sections.
    2. If you select Step-by-Step Guidance, the program will proceed with the interview questions for you to enter or review the appropriate information.

Also, as mentioned above, a statement is required. You are able to do this in the TaxAct program as follows and the return will still be eligible for electronic filing.

  1. Click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click Retirement Plan Income  in the Federal Quick Q&A Topics menu
  3. Click IRA Distribution Explanation to enter the statement information

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