Form 8606, where does recharacterized amount show up?

[KTS2021]

Hello ProConnect Community!

A client (above age 50) fully contributed in 2022 IRA: $250 in Roth later recharacterized to non-deductible TIRA and $6750 directly into non-deductible TIRA, due to AGI limitation.  How do I correctly show the total amount that went to non-deductible TIRA? 

Right now, Line 1 of Form 8606 only shows $6750.  I entered $250 in Roth IRA and Recharacterization columns, but it does not appear to do anything on 8606.  Also, Page 2 of 8606 does not generate either. 

Thank you!

[qbteachmt]

"in Roth later recharacterized to non-deductible"

Since there was a delay, does this take into account earnings or loss? Because you don't just move the contribution. Was that the entire balance in that Roth? Full recharacterization doesn't get reported, since you are not deducting it. It becomes basis. And when certain actions are made for the same tax year before the filing due date of the tax form for that year, a lot of these types of actions are considered a wash, unless there is a penalty, or tax on earnings.

Take a look at guidance, such as the IRS and:

https://www.investopedia.com/articles/retirement/03/092403.asp

and:

https://www.irs.gov/instructions/i8606

[itonewbie · Accepted solution]

As Michelle says.

Recharacterization is treated as contribution made to the other account so long as it is a trustee-to-trustee transfer and all the other conditions are met.

408A(d)(6)Taxpayer may make adjustments before due date.—

408A(d)(6)(A)In general.—

Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan).

408A(d)(6)(B)Special rules.—

408A(d)(6)(B)(i)Transfer of earnings.—

Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution.

408A(d)(6)(B)(ii)No deduction.—

Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.

408A(d)(6)(B)(iii)Conversions.—

Subparagraph (A) shall not apply in the case of a qualified rollover contribution to which subsection (d)(3) applies (including by reason of subparagraph (C) thereof).

In other words, the $250 originally contributed to ROTH IRA but subsequently recharacterized will be treated as contribution made directly to the Traditional IRA.  Together with the other $6,500, F.8606, Line 1 will report $6,750.

Recharacterization is specifically excepted for, F.8506, Part III.  That's why nothing is populated.

In terms of input, you will make your entries on two different screens, as you probably already know:

• IRA Contributions: Deductions > Adjustments to Income, on the Retirement tab; and
• Distribution from ROTH IRA: Income > Pensions, IRAs (1099-R)

These are the entries you will need to make for IRA Contributions:

• Recharacterizations: I find that this field doesn't work properly for ProConnect Tax and would ignore it altogether;
• IRA contributions (1=maximum deduction): Since Recharacterizations doesn't function as it should, enter the entire $6,750 so that this will flow through to F.8606, Line 1;
• Contributions made (letter use only): Enter 250 so that your client letter will remind your client to only make a contribution of $6,500 by April 18.  If your client has already made the full contribution, you should then enter 6,750, so that the IRA contribution paragraph will not be included in the client letter..

[KTS2021]

Thank you for the comment.  It was a loss.  When the $250 was recharacterized, the amount actually moved to non-deductible TIRA was $203. 

[itonewbie]

NP.  But the recharacterized contribution is still $250 and the loss is not recognized.

[itonewbie]

And on the input for IRS Contributions, make sure you fill out the details to produce the required statement regarding the recharacterization.

[MVH]

It's a year later than when you posted this, so this won't help YOU, but when I ran into the same thing I found this thread (which didn't seem helpful to me), however, ProConnect's Check Return Suggestions told me to put the Roth recharacterized amount in the Traditional IRA contribution field so that it would either be treated as a deduction or an 8606 would be created to show it as a basis in the Traditional IRA.

[qbteachmt]

"put the Roth recharacterized amount in the Traditional IRA contribution field so that it would either be treated as a deduction or an 8606 would be created to show it as a basis in the Traditional IRA."

Roth contributions are only after-tax dollars, so it is never possible to treat it as deductible. Yes, it would be basis when recharacterized to Trad IRA. Earnings are always the consideration when this happens, because Roth earnings have not been taxed, and any recharacterization or distribution of excess contribution has to take earnings into consideration.