How to handle Form 1099-R distribution Code N when recharacterizing IRA contributions?

If it's non-taxable, why do we even need to report it? That seems like unnecessary paperwork. Also, would this be different if they had originally put money in a Roth and then moved it to Traditional instead of the other way around?

You need to report it because the IRS receives a copy of that 1099-R from your brokerage firm, and they'll be looking to match it with what's on your tax return. If you don't include it, it could trigger a mismatch and potentially lead to a notice or audit. Think of it as crossing t's and dotting i's - you're acknowledging the transaction happened, but confirming it was non-taxable. If the situation was reversed (Roth to Traditional), it would still be a recharacterization with Code N, but the tax implications might differ slightly depending on whether deductions were taken. The key is that recharacterizations are administrative corrections, not distributions or conversions, which is why they're generally non-taxable events.

Does it work with other distribution codes too? I have a 1099-R with code G for a rollover and I'm not sure if I'm handling it right in TurboTax.

I'm skeptical about these tax tools. How does it handle state taxes? And how accurate is it compared to going to a CPA? Seems like for something as complicated as retirement accounts you'd want a professional looking at it.

Yes, it works with all distribution codes! I've seen it handle Code G rollovers as well. It explains each code and what it means for your taxes, then walks you through reporting it correctly. It's especially helpful for checking if TurboTax has placed everything in the right spots. It handles state taxes really well. The system knows which states require specific reporting for retirement distributions and which ones simply follow federal treatment. While it's not a replacement for a CPA in complex situations, it's extremely accurate for most tax scenarios involving retirement accounts. I actually used it to double-check my CPA's work and found a mistake they had made with my state's treatment of my rollover!

How exactly does this work? Does it just call the IRS for you? I'm confused why I would pay for something I could do myself by just calling.

Yeah right. There's no way to skip the IRS phone queue. This sounds like a scam to get people to pay for something that doesn't actually work. I've tried everything and still end up waiting hours or getting disconnected.

It doesn't just call for you - it uses a system that constantly redials and navigates the IRS phone tree until it gets through to a representative. Then when an agent is about to come on the line, it calls you and connects you directly. So instead of you personally waiting on hold for hours, their system does the waiting for you. I was skeptical too until I tried it. The difference is they have technology that can keep redialing and waiting through disconnects much more efficiently than a human can manually. I had tried calling for three days straight with no luck, but with their service I was talking to someone at the IRS in under half an hour. It's basically paying to get those hours of your life back that you'd otherwise spend listening to the IRS hold music!

Will that Form 5498 be something I need to do anything with? Or is it just documentation? I'm worried about missing something important here.

You don't need to do anything with Form 5498. It's sent to you and the IRS for informational purposes only - you never file it or include it with your tax return. It's basically just the IRS's way of tracking where your IRA contributions ended up after everything settled. Think of it as the bookend to the process. Your 1099-R shows money moving out of one account, and the 5498 confirms it landing in the final destination. Just keep it with your tax records in case there are ever any questions, but otherwise no action needed!

Could you explain more about the contribution limits issue? If I do a recharacterization does that somehow count twice against my contribution limits? Getting anxious about this now...

No, recharacterizations don't count twice against your contribution limits! The key thing to understand is that a recharacterization is treated as if you made the contribution to the correct account type from the beginning. So if you contributed $6,000 to a Traditional IRA and then recharacterized it to a Roth IRA, it's as if you originally contributed $6,000 directly to the Roth - you're still only using $6,000 of your annual contribution limit, not $12,000. The deadline concern is more about timing - you have until the tax filing deadline (including extensions) to complete a recharacterization for the previous tax year. But since @Tyler already completed his recharacterization and received the 1099-R, he's all set on that front. The contribution limits you need to watch are the standard annual limits ($6,000 or $7,000 if 50+) and income limits for Roth contributions, but the recharacterization itself doesn't create any additional limit issues.

This is really helpful advice! I'm actually in a very similar situation - just received my 1099-R with Code N for a recharacterization I did last year. I was panicking thinking I'd somehow screwed up my taxes, but reading through this whole thread has been incredibly reassuring. It's good to know that asking the tax preparer to walk through exactly where it shows up on the return is a reasonable request. I tend to just nod along when they're explaining things, but for something this important I definitely want to see it for myself. Thanks for mentioning that Code N recharacterizations are routine - that makes me feel so much better about my upcoming appointment!