Question on Form 8606 - failed Backdoor Roth due to income level & subsequent recategorization.

[vmaccounting]

Hi all! 

Client received 1099-R for $5,500 code 2 (x IRA) in 2021. Here is how he explains what happened: 

"I figured I was not going to be able to get a Roth due to my income in 2021. So for almost the entire year I took funds from my checking account, deposited them into my traditional IRA, and then did the “back door Roth” to move the funds into my Roth IRA. The only month I failed to do that was in January 2021, hence why the 1099 is 5500 vs 6000. In January 2021 I didn’t do a back door Roth, I just deposited it straight into the Roth which is why I had to recharacterize the $500 a few weeks ago". 

What should I do here? Should I fill out form 8606 as backdoor roth for $5,500 in part 1. What about part 2 of the form 8606? 

Thanks a lot! 

[qbteachmt]

Read this similar topic; especially today's reply.

https://proconnect.intuit.com/community/lacerte-tax-discussions/discussion/how-to-treat-a-recharacte...

[vmaccounting]

Thanks! 

[qbteachmt]

What you are trying to determine, and not based on the taxpayer's description but based on reality, is:

Trad IRA as deductible or post tax.

Roth eligible or not.

Transfer vs rollover vs in his hands.

Recharacterize is not the same as Conversion.

The $5k might or might not be taxable, and the $500 might be an excess corrections or not, and there might have been earnings or not.