Received a 1099-R from my Roth IRA but never took a distribution - what's going on?

Is there a time limit for when brokerages can do these recharacterizations? I thought they had to happen in the same tax year or something like that? Also, would the brokerage be obligated to notify you before making this kind of adjustment?

Recharacterizations typically need to be completed by the tax filing deadline including extensions (so for 2021 contributions, generally by October 15, 2022). That's why you're seeing this on a 2022 form even though it relates to 2021 contributions. As for notifications, brokerages should inform you before making these adjustments, usually through account notices or emails. However, sometimes these communications get missed or filtered. The brokerage may have sent notices that went to spam or were overlooked among other financial communications.

How accurate is this taxr.ai thing? I keep getting weird tax forms I don't understand and my CPA charges me extra every time I ask questions. Does it actually explain what the forms mean in normal human language?

Did you find out if you needed to amend your previous year's return? If they recharacterized 2021 contributions in 2022, wouldn't that affect your 2021 taxes too? This whole retirement account stuff is so confusing.

It's incredibly accurate - I cross-checked with a tax pro and everything matched up. You just upload your documents and it breaks down each section in plain English without the tax jargon. It saved me from paying my accountant for an hour of his time just to explain one form. For your question about amending returns, I actually didn't need to amend my 2021 return. The recharacterization is reported in the year it happens (2022 in my case), but you're right that it relates to the previous year's contribution. The system explained that the earnings portion (that $1.12 in Box 2a) gets reported as income in 2022, but the contribution portion itself doesn't require amending the previous return since it's just moving money between retirement accounts.

Wait, so how exactly does this service work? Do they just call and wait on hold for you? That seems like something that shouldn't even need to exist, but honestly I hate calling customer service so much I might try it.

Yeah right... sounds like a scam to me. How would they have authority to discuss your financial information? And why would a call center rep prioritize their call over anyone else's? I'll stick with emailing my brokerage and waiting the standard 5-7 business days for a response, thanks.

They basically call the company and navigate through all the automated systems and wait on hold instead of you. When they reach a live person, they conference you in so you can speak directly with the representative. They don't actually discuss any of your personal information - they just handle the waiting part. The call center reps don't prioritize them - Claimyr just has technology that keeps the connection going and monitors for when a human answers. I was skeptical too until I tried it. I had already wasted nearly 6 hours trying to get through on my own over 3 different days. With them, I got a call back in 45 minutes with a rep already on the line. They saved me from having to use another vacation day just to sit on hold.

So you think this is actually a helpful service from my brokerage rather than a mistake? I had no idea they would monitor my income and make adjustments like this. Is there any way I should have known this was coming? I never saw any notifications and was completely surprised by the 1099-R.

Yes, it's definitely a helpful service - they're protecting you from potential penalties. Most brokerages include this information in their account agreements, but it's often buried in the fine print that nobody reads. They typically send notifications via your communication preferences (email, account message center, mail), but these can easily be missed. For future reference, you can usually see pending recharacterizations in your transaction history or on statements. They might be labeled as "recharacterization," "correction," or "adjustment." It's always a good idea to check if you're near the Roth IRA income limits. For 2024, the limits start phasing out at $146,000 for single filers and $230,000 for married filing jointly, so if you're in that range, keep an eye out for potential adjustments next year.

The 6% penalty isn't just a one-time thing though. It applies EVERY YEAR that the excess contribution remains in your account. So it's $168 this year, then another $168 next year, and so on until you remove the excess. Plus, you'd still need to file Form 5329 to report the excess contribution, which is another form to deal with. The recharacterization is definitely better long-term because it's a one-time fix with no penalties. Your money stays in a tax-advantaged account (just a traditional IRA instead of Roth) rather than paying penalties year after year.

I didn't realize the penalty was annual! That definitely changes things. $168 every year would add up pretty fast. Thanks for explaining - guess my brokerage did me a favor with the recharacterization after all.