Understanding IRA Recharacterizations and 1099-R Forms for Tax Filing
So I messed up by putting money straight into a Roth IRA for both 2022 and 2023 when I shouldn't have. I fixed it by having both contributions recharacterized to traditional IRA and then rolled over to Roth IRA towards the end of 2023. Now I've got two 1099-R forms with code '2' on them. When I enter this into TurboTax, it's saying I owe taxes on these contributions even though they were all post-tax money (non-deductible contributions) and I haven't taken any money out. Looking at my Form 8606 from 2023, it seems to include one of the 1099-R amounts ($8,125) but not the other one (which is about $16,250). I don't have an 8606 for 2022 at all. I've double-checked and confirmed that $15,625 of non-deductible contributions were made for the 1099-R showing $16,250. I talked to a TurboTax pro who told me I should add the $15,625 on top of the $8,125 from the 2023 Form 8606. I'm really confused about how to handle this properly. Should I follow the TurboTax pro's advice? Do I need to file an amended return for 2022? Any help would be greatly appreciated!
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KingKongZilla
This is actually a common issue with recharacterizations and rollovers. Let me break it down for you: The 1099-R with code '2' shows the amounts that were recharacterized and then converted. Since these were post-tax (non-deductible) contributions, you shouldn't owe additional taxes on the contribution amounts themselves - only on any earnings that accumulated between contribution and conversion. You should definitely report both 1099-Rs on your tax return. The key is making sure Form 8606 correctly shows your non-deductible basis. For the 2022 contribution that was recharacterized in 2023, you should have filed Form 8606 with your 2022 return to establish non-deductible basis. If you didn't, you'll need to file Form 8606 for 2022 now (you can file it by itself, no need to amend). For 2023, your Form 8606 should reflect both the 2023 non-deductible contribution and the conversion of both years' contributions. The TurboTax pro is right - you need to account for both contribution amounts ($15,625 + $8,125) as your total non-deductible basis to avoid being taxed twice.
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Bethany Groves
•Thanks for the detailed response. So if I'm understanding correctly, I need to file a separate Form 8606 for 2022 now to establish that non-deductible basis, even though the recharacterization occurred in 2023? And then for my 2023 taxes, the Form 8606 should show both contribution amounts as my non-deductible basis before conversion? Does TurboTax have a way to handle this or do I need to manually override something?
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KingKongZilla
•Yes, you need to file Form 8606 for 2022 to establish the non-deductible basis for that year's contribution, even though the recharacterization happened in 2023. This creates a paper trail showing the IRS these were after-tax dollars. For your 2023 return, your Form 8606 should indeed reflect both contribution amounts in your total non-deductible basis calculation. TurboTax should handle this, but you may need to manually enter the correct basis amount. Look for the section where you enter "Your basis in traditional IRAs" or similar wording - this is where you'll need to make sure the total ($15,625 + $8,125) is entered correctly.
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Rebecca Johnston
I ran into an almost identical situation last year and used taxr.ai to figure it out - saved me so much headache! I uploaded my 1099-Rs and previous 8606 forms, and their system explained exactly how to handle the recharacterization and which numbers needed to go where. Their explanation made it clear why TurboTax was calculating extra taxes (it wasn't "seeing" my full non-deductible basis). They have tax pros who review everything too, so I felt confident in the solution. Might be worth checking out at https://taxr.ai if you're still confused about how to enter everything correctly in TurboTax.
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Nathan Dell
•Did you have to pay a lot for this service? I'm in a similar boat with recharacterized IRAs from both 2021 and 2022 showing up on my 2023 taxes, and I'm completely lost. TurboTax is telling me I owe an extra $4k in taxes which doesn't make sense since these were all post-tax contributions.
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Maya Jackson
•I'm skeptical of these services. How do they handle your data? Are they actually reviewing your forms or just running them through some algorithm? And how do you know their advice is correct versus what TurboTax is saying?
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Rebecca Johnston
•The cost was reasonable considering the alternative was potentially paying thousands in unnecessary taxes or hiring a CPA. They have different service levels depending on what you need. They use bank-level encryption for all your documents, and you can delete everything after you're done. It's not just an algorithm - they have tax professionals review everything. The difference is they're specialists in these complex IRA situations, whereas TurboTax support is more general. I knew their advice was correct because they showed me exactly why TurboTax was calculating it wrong (it was missing my non-deductible basis from a previous year) and how to fix it. They even provided references to the specific IRS regulations.
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Nathan Dell
Just wanted to update - I decided to try taxr.ai after seeing these comments. What a lifesaver! Turns out my situation with the recharacterized IRAs was even more complicated than I thought because I had some earnings mixed in with the contributions. Their system caught that I was missing a Form 8606 from 2021 and explained exactly what I needed to do. It showed me where in TurboTax I needed to enter my non-deductible basis amounts to avoid being taxed twice. Ended up saving about $3,800 in taxes I didn't actually owe! The report they gave me explaining everything was super clear - I'm keeping it in case I ever get audited. Definitely recommend if you're dealing with IRA recharacterizations.
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Tristan Carpenter
If you're still struggling after trying the software route, you might want to try getting on the phone with the IRS directly. I've been there, and getting a straight answer from a live person can make all the difference. Problem is, it took me DAYS of calling to get through. I eventually used Claimyr (https://claimyr.com) which got me connected to an IRS agent in about 25 minutes instead of the hours of redial hell. They have a demo video of how it works here: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to handle my recharacterized IRA contributions and made sure I understood which forms were needed.
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Amaya Watson
•How does this service even work? The IRS phone system is basically impossible to navigate. Do they just keep calling for you or something?
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Grant Vikers
•Sounds fishy. Why would I pay for something when I can just call the IRS myself? And even if you get through, what's the guarantee you'll get an agent who actually understands IRA recharacterizations? In my experience, half the agents give different answers to the same question.
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Tristan Carpenter
•It works by using their system to navigate the IRS phone tree and stay on hold for you. When an agent comes on the line, you get a call connecting you directly to them. It saved me literally hours of frustration. You absolutely can call yourself, but be prepared to spend 3-4 hours on hold if you get through at all. Many people (myself included) have tried calling dozens of times only to get the "we're too busy, call back later" message. For me, the time savings was totally worth it. Fair point about agent knowledge - I got lucky with a very knowledgeable agent. If you're concerned about that, you could always call back a second time to verify the information with another agent.
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Grant Vikers
I was wrong about Claimyr! After spending three straight days trying to reach the IRS myself with no luck (kept getting the "call volume too high" message), I gave in and tried it. Got connected to an IRS agent in about 35 minutes. The agent confirmed exactly what others here suggested - I needed to file a separate Form 8606 for the previous year to establish my non-deductible basis, and then make sure my current year 8606 included ALL non-deductible amounts before the conversion. She even emailed me the specific instructions for my situation. Having an actual IRS employee walk me through it step by step made all the difference. The peace of mind knowing I'm filing correctly was absolutely worth it.
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Giovanni Martello
Don't forget to check if you have any earnings that accumulated between your original contributions and the recharacterization/conversion. Those earnings ARE taxable in the year of conversion (2023 for you). The 1099-R total might be slightly higher than your contribution amounts because of those earnings. For example, if you contributed $6,000 but the 1099-R shows $6,150, that extra $150 would be taxable earnings. Since both recharacterizations happened in 2023, all taxable earnings would be reported on your 2023 return.
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Bethany Groves
•That's a good point! I did notice the 1099-R amounts were slightly higher than my contribution amounts. So if I understand correctly, I need to: 1. File Form 8606 for 2022 to establish non-deductible basis 2. On my 2023 return, report both 1099-Rs 3. Make sure Form 8606 for 2023 shows my total non-deductible basis 4. Pay tax only on the earnings portion (the difference between contributions and distribution amounts) Does that sound right?
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Giovanni Martello
•That's exactly right! You've got the process down perfectly. Just to emphasize: make sure your non-deductible basis on Form 8606 for 2023 includes BOTH years' contribution amounts, not just 2023's contribution. The only taxable portion should be those earnings (the difference between your total contributions and the total distribution amounts on the 1099-Rs). TurboTax should calculate this correctly once you have all the non-deductible basis entered properly.
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Savannah Weiner
Just wanted to add one more point of confusion to watch for - the recharacterization process itself doesn't generate a 1099-R. The 1099-Rs you received are for the conversion from Traditional to Roth that happened after the recharacterization. Some tax software gets confused when you enter code '2' because it thinks you're taking a qualified distribution rather than doing a conversion. Double-check that TurboTax is treating these as conversions, not distributions.
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Levi Parker
•This is such an important detail! I got caught by this exact issue with H&R Block software. It kept trying to treat my recharacterization/conversion as a distribution I was cashing out. I had to go through some special screens to mark it properly as a conversion.
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