Backdoor Roth in TurboTax: Recharacterize & Convert, Same Year

You may have contributed to a Roth IRA and then realized later in the year that you would exceed the income limit. You recharacterized the Roth IRA contribution as a Traditional IRA contribution and converted it to Roth again before the end of the year. Your IRA custodian sent you two 1099-R forms, one for the recharacterization and one for the conversion. This post shows you how to put them into TurboTax.

If you had done the recharacterizing and converting in the following year, you would have to split the tax reporting into two years by following Split-Year Backdoor Roth IRA in TurboTax, 1st Year and Split-Year Backdoor Roth IRA in TurboTax, 2nd Year. Now because you caught the problem soon enough before the end of the year, you can handle all of it in the same year by following this guide.

Here’s the example scenario we’ll use in this guide:

You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your income would be too high later in 2023. You recharacterized the Roth contribution for 2023 as a Traditional contribution. The IRA custodian moved $6,600 from your Roth IRA to your Traditional IRA because your original $6,500 contribution had some earnings. The value increased again to $6,700 when you converted it to Roth before December 31, 2023. You received two 1099-R forms, one for $6,600 and another for $6,700.

If you didn’t do any of these recharacterizing and converting, please follow our guide for a “clean” backdoor Roth in How To Report Backdoor Roth In TurboTax (Updated).

If you’re married and both you and your spouse did the same thing, you should follow the steps below once for yourself and once again for your spouse.

Use TurboTax Download

The screenshots below are from TurboTax Deluxe downloaded software. The downloaded software is way better than online software. If you haven’t paid for your TurboTax Online filing yet, you can buy TurboTax download from Amazon, Costco, Walmart, and many other places and switch from TurboTax Online to TurboTax download (see instructions for how to make the switch from TurboTax).

1099-R for Recharacterization

We handle the 1099-R form for the recharacterization first. This 1099-R form has a code “N” in Box 7.

Go to Federal Taxes -> Wages & Income -> IRA, 401(k), Pension Plan Withdrawals (1099-R).

Confirm that you have received a 1099-R form. Import the 1099-R if you’d like. I’m choosing to type it myself.

It’s a regular 1099-R.

The 1099-R form for the recharacterization shows the amount moved from the Roth IRA to the Traditional IRA in Box 1. The taxable amount is 0 in Box 2a and the “Taxable amount not determined” box isn’t checked. The code in Box 7 is “N” and the “IRA/SEP/SIMPLE” box may or may not be checked. It isn’t checked in our sample form.

That box is blank in our 1099-R, and that’s OK.

It’s normal to see zero in Box 2a and blank in Box 2b on this 1099-R form. TurboTax just wants to double-check.

Not a Public Safety Officer.

Not due to a disaster.

You’re done with the 1099-R form for the recharacterization. Click on “Add Another 1099-R” to add the one for the conversion if you don’t have both 1099-R forms imported already.

1099-R for Conversion

This 1099-R form is also a regular 1099-R.

It’s normal to see the conversion reported in Box 2a as the taxable amount when Box 2b is checked to say “Taxable amount not determined.” The code in Box 7 is ‘2‘ when you’re under 59-1/2 or ‘7‘ when you’re over 59-1/2. The “IRA/SEP/SIMPLE” box is checked on this 1099-R form for the conversion.

It says that you don’t owe extra tax on this money but your refund meter drops. Don’t panic. It’s normal and only temporary.

It’s not a Roth SIMPLE or a Roth SEP.

Did not inherit it.

Converted to Roth

First click on “I moved …” then click on “I did a combination …” Enter the amount you converted to Roth in the box. It’s $6,700 in our example. Don’t choose the “I rolled over …” option. A rollover means Traditional-to-Traditional. Converting to Roth isn’t a rollover.

Didn’t put it in an HSA.

Not due to a disaster.

Now the 1099-R summary includes both 1099-R forms. Keep going by clicking on “Continue.”

No disaster distributions.

Basis

You can answer “No” here but answering “Yes” with a 0 has the same effect and it allows you to correct previous mistaken entries.

This should be 0 if you hadn’t made any nondeductible contribution to a Traditional IRA before. If you had, get the value from your last year’s Form 8606 Line 14.

These are normally all zero if you converted everything. If you had a few dollars left in the account from earnings posted after you converted, enter the value from your year-end statement in the first box.

The refund meter is still temporarily depressed. It’ll come back only when we enter the recharacterized Roth IRA contribution.

Recharacterized Contribution

Go to Federal Taxes -> Deductions & Credits -> Traditional and Roth IRA Contributions.

Check the box for Roth IRA because you originally contributed to a Roth IRA.

We already checked the box for Roth IRA but TurboTax just wants to make sure.

It was not a repayment of a retirement distribution.

Enter the amount of your original Roth contribution. It was $6,500 in our example.

Recharacterized

Now we confess that we recharacterized the contribution as a Traditional IRA contribution. Answer Yes here.

The amount here is relative to the original contribution amount. If you recharacterized the whole thing, enter $6,500 in our example, not $6,600 which was the amount with earnings that the IRA custodian moved into the Traditional IRA.

The IRS wants a statement to explain the recharacterization. Click on “Fill in Template.”

Fill in the dates of your original contribution and your recharacterization. The amount in the last box includes earnings. It’s $6,600 in our example.

Roth Basis

If you take up this offer from TurboTax to track your Roth IRA basis, it’s going to ask you questions about previous years, which is more trouble than it’s worth to me. I answered No.

You don’t need to track your Roth IRA basis if you’re planning to withdraw from your Roth account only after age 59-1/2 and after you’ve had your first Roth IRA for five years. See Roth IRA Withdrawal After 59-1/2 in TurboTax.

No excess contributions.

Make It Nondeductible

TurboTax shows this only when it sees your income qualifies for a deduction. You have the option to take the deduction or decline the deduction. Taking the deduction will make your conversion taxable, which is also OK because it creates a wash. It’s simpler if you make your full contribution nondeductible and then your Roth conversion isn’t taxable. Enter the amount of your available deductible contribution in the last box. It’s $6,500 in our example.

Your Traditional IRA deduction is zero, which is OK because it makes your Roth conversion not taxable.

Taxable Income

Let’s look at how all these show up on your tax return. Click on “Forms” on the top right.

Find Form 1040 in the left navigation panel. Scroll up or down on the right to find lines 4a and 4b. Line 4a shows the sum of your two 1099-R forms. It’s $13,300 in our example. This is normal. Line 4b shows that only $200 is taxable. That’s the earnings between the time you contributed to your Traditional IRA and the time you converted it to Roth.

When you’re done examining the form, click on Step-by-Step on the top right to go back to the interview.

Switch to Clean Backdoor Roth

You avoided having to split your IRA contribution and Roth conversion in two different tax returns by recharacterizing in the same year and converting before December 31. Still, you had to do the extra work with your IRA custodian and follow all these steps in this guide when you do your taxes.

It’s much better to go with a “clean” backdoor Roth from the get-go. If there’s any possibility that your income will be over the limit again, simply contribute to a Traditional IRA for 2024 in 2024 and convert it to Roth in 2024. You’re allowed to do a clean backdoor Roth even if your income ends up below the income limit for a direct contribution to a Roth IRA. It’s much simpler than the confusing recharacterize-and-convert maneuver. Then you only need to follow our guide for a clean backdoor Roth in How To Report Backdoor Roth In TurboTax.