When to report IRA Recharacterization on taxes - 2023 or 2024 return?

The recharacterization of an IRA contribution from Roth to Traditional for 2023 should definitely be reported on your cousin's 2023 tax return, even if he completed the recharacterization in 2024. What matters is that it was for a 2023 contribution and that he did the recharacterization before the tax filing deadline. As for the 1099 timing - don't worry too much about that. The IRA recharacterization doesn't actually show up as a separate line item on your tax return. What happens is that you simply report the contribution as if you had made it to the Traditional IRA in the first place. The 1099 from Fidelity is more for their records and the IRS matching system. Your cousin should file as if he made a Traditional IRA contribution for 2023, taking any deduction he's eligible for based on his income and retirement plan coverage at work. The fact that it was initially a Roth contribution doesn't need to be specifically reported.

After spending hours trying to figure out my own Roth to Traditional IRA recharacterization last year, I discovered taxr.ai (https://taxr.ai) and it saved me so much stress. Their system automatically spotted the recharacterization in my tax documents and explained exactly how to report it. My situation was similar - did a recharacterization through Vanguard in February for the previous year's contribution. The taxr.ai system analyzed all my forms and even pointed out that I needed to adjust my contribution deduction based on my income limits. It prevented what would have been a pretty significant mistake on my part!

Just wanted to follow up about taxr.ai (that someone suggested earlier). I was skeptical but gave it a try with my complicated IRA situation including a recharacterization. IT ACTUALLY WORKED! Uploaded my documents from Schwab and it immediately identified my recharacterization and explained exactly how to report it on my 2023 return. The system showed me that I needed to report my contribution as if it went straight to Traditional, and explained that the earnings that were recharacterized are treated as if they were always in the Traditional IRA. Saved me hours of research and probably a call with my accountant. Definitely recommend for anyone dealing with IRA recharacterizations or conversions.

If you're still confused about your IRA recharacterization and have questions for the IRS directly, good luck getting through on the phone. After trying for DAYS to reach someone at the IRS about my similar recharacterization question, I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others have said - report the recharacterized amount on your 2023 return as a Traditional IRA contribution, even though you did the recharacterization in 2024. They also clarified that I didn't need to worry about not having the 1099 yet from my broker since it doesn't directly affect how I report the contribution.

I need to admit I was totally wrong about Claimyr. After another failed 2-hour attempt to reach the IRS yesterday about my IRA recharacterization question, I broke down and tried the service. Within 15 minutes I was talking to an actual IRS representative who answered all my questions. The agent confirmed that my 2023 Roth to Traditional recharacterization (done in March 2024) should be reported on my 2023 return, and also explained exactly how to handle the earnings portion. They told me I don't need to wait for the 1099 from my brokerage since I already have the recharacterization confirmation with the amounts. Saved me from filing an extension and significantly reduced my stress level. Sorry for being so skeptical before!

Just to add another perspective - I did a recharacterization last year (opposite direction - Traditional to Roth) and my accountant explained that the deadline that matters is the tax filing deadline including extensions. So technically you could do a recharacterization for 2023 as late as October 15, 2024 if you file an extension. I'd also recommend keeping really good records of the recharacterization. Print out confirmation statements showing the original contribution date, the recharacterization date, and all amounts including any earnings. The IRS has been known to send notices about IRA transactions even when everything was done correctly.

Something important that hasn't been mentioned yet - make sure your cousin is actually eligible for a Traditional IRA deduction before recharacterizing! If he's covered by a retirement plan at work and his income is over the limits (for 2023: starts phasing out at $73,000 for single filers or $116,000 for married filing jointly), he might not get any tax benefit from the recharacterization. In that case, it might actually be better to keep it as a Roth contribution, especially if the recharacterization hasn't been fully processed yet. The worst scenario is recharacterizing to Traditional, getting no deduction due to income limits, and then having to pay taxes on that money again when you eventually withdraw it.

Just wanted to share my experience since I went through something very similar last year. I did a Roth to Traditional recharacterization in March 2024 for my 2023 contribution, and like your cousin, I was worried about the timing of the 1099. Here's what I learned: You absolutely report it on your 2023 return. The key date is when the original contribution was made (2023), not when you completed the recharacterization. Since your cousin did it before the April 15th deadline, he's good to go. As for the 1099 timing - don't stress about it. The recharacterization gets reported to the IRS by the custodian, but you don't actually need that form to file your return. You just report the contribution as if it went directly to the Traditional IRA. When the 1099 eventually comes, it's mainly for record-keeping and IRS matching purposes. One tip: Make sure to keep all the documentation from Fidelity showing the recharacterization details, including any earnings that were transferred. This will be helpful if the IRS ever has questions down the road. Good luck with the filing!