Can anyone check if my Forms 8606 and 5327 for 2023 are correctly filled out for my 2022 Roth IRA recharacterization?

I'm in a similar situation, but I'm confused about the recharacterization vs conversion terminology. If OP recharacterized their excess 2022 contribution in 2023, shouldn't that have resolved the issue already? Why would they still owe the $23 penalty for 2023?

Thanks for confirming most of my forms look right. So to stop paying this penalty, I should reduce my 2024 Roth contribution by $390? Or actually withdraw that amount from the Roth entirely? I thought the recharacterization and conversion would have fixed this. I'm getting so frustrated with these penalties continuing!

Recharacterization moves the contribution from one type of IRA to another, but doesn't fully address the excess contribution issue by itself. The IRS still sees you as having contributed too much to retirement accounts overall for 2022. To stop paying the penalty, you have two main options. You could reduce your 2024 Roth IRA contribution by $390 (effectively applying the excess to 2024). Alternatively, you could withdraw $390 plus any associated earnings from your Roth IRA. The most straightforward approach is probably to reduce your 2024 contribution by $390. Instead of contributing the full limit for 2024, subtract $390 and only contribute the remainder. This effectively uses up your excess contribution "slot" and should resolve the penalty going forward.

Does taxr.ai handle complex IRA situations like this? I've got a mess with multiple conversions and recharacterizations over 2 years, and I'm pretty sure my tax software is getting it wrong.

I'm skeptical of these online tools - can't the IRS answer these questions for free? Why pay for something that might not be any better than just calling the IRS?

Yes, it handles complex IRA situations extremely well. You just upload your forms or even screenshots of tax software screens, and it analyzes everything line by line. It's especially good at catching Form 8606 errors, which are super common with backdoor Roth conversions and recharacterizations across multiple tax years. The IRS won't actually give you specific tax advice like this - they'll tell you what the general rules are, but they won't review your forms or tell you exactly how to fill them out. Plus, their phone lines are overwhelmed, with wait times of hours if you can get through at all. The tool costs less than what most people would pay a CPA for just 15 minutes of their time.

Wait, there's actually a way to get through to the IRS? How does this service work? Every time I call I end up in an endless loop of automated messages before getting disconnected.

This sounds like a scam. Why would I pay someone to call the IRS for me when I can just keep trying myself? And how do they magically get through when millions of people can't?

The service basically monitors the IRS phone lines constantly and secures your place in line. When they get through, they have the IRS call you back directly. No magic - just technology and persistence. They don't call for you or pretend to be you - they just secure your place in line, and then the actual IRS calls you. I was skeptical too, but after wasting days trying to get through myself, it was worth it. The IRS phone system is overwhelmed - they're getting millions of calls, and most people can't get through. This just increases your chances substantially. I would have spent way more in wasted time had I kept trying on my own.

My custodian did break it down - there were about $78 in earnings on the excess amount. Does that change how I should handle the forms? So confused about why I'm still paying penalties even after doing what I thought was the right thing.

That explains it! When you recharacterize, both the contribution and earnings get moved. But for the 6% penalty calculation, you're still considered to have made an excess contribution until you properly "use up" that contribution amount. You need to either: 1) reduce your 2024 Roth contribution by the $390 excess amount, or 2) remove the $390 from your retirement accounts entirely. The earnings situation is properly handled through the recharacterization, but the "slot" of contribution is what's creating the ongoing penalty. Form 5329 has a specific line where you can claim a "credit" for addressing the prior year's excess. Make sure to complete that for 2024 once you've taken one of these steps, and you'll stop the penalty cycle.

In my experience, NO tax software handles Roth recharacterizations correctly, especially when they span multiple tax years. I had to manually override several fields in TurboTax last year. The biggest issue is that the tax software interview questions don't properly distinguish between recharacterization vs conversion, and they don't track your basis correctly across tax years. I'd strongly recommend either getting professional help or at minimum running your completed forms by a tool that specializes in these situations before filing.

Thank you! That's really helpful. I think I'll have to do some manual overrides then. I was worried I was doing something wrong but it sounds like the software itself just doesn't handle these complex situations well.