I need help with Roth IRA conversion / Recharacterized contributions

[Mustapha Ratib]

Hi All,

I need help with working on Recharacterized contributions for one of my clients. if anyone that can help I am willing to pay for his or her fees for doing this please let me know if you can help with this process asap, I would appreciate it.

Case: The Taxpayer is using the Backdoor Roth IRA. He contributes to Nondeductible Traditional IRA then he converts it to a Roth IRA. I got 5498 Form that shows Recharacterized contribution amount $6,000 and then another 5498 form that shows Roth IRA conversion with the same amount $6,000. So, I need to know how the process this transaction in Professional Proseries.

Regards

Mustapha

[TaxGuyBill]

Just post your question here, with as much detail as possible.

And you might want to remove your phone number and email address.  Spam-bots search websites to 'grab' such things to for purposes of selling you something and/or try to scam you with something.

[Just-Lisa-Now-]

Please remove your personal information, nobody here will call you, and any stranger will have access to your phone or email and bombard you with spam and junk.

[Mustapha Ratib]

Thank you for the advice. will do asap. Mo

[Mustapha Ratib]

Appreciate your advice, will do asap. Mo

[Mustapha Ratib]

Hi Lisa, 

I am trying to remove my personal infos but I couldn't find the way you do it. could you please provide me with the step to do it, or to remove the whole text. Mo thanks

[Just-Lisa-Now-]

Click the 3 dots n the corner of your post and choose Edit

[Terry53029]

Will need the dates your client made the transactions. the process is, he will make a contribution to a nondeductible traditionally IRA (to give him a basis) He will receive a 1099R for taking from the traditional IRA and Recharacterizing to a ROTH. Keep in mind that if he already has a nondeductible traditional IRA it will not give him the outcome he thinks. 

[qbteachmt]

Conversion and Recharacterized are two different things. Did your taxpayer do Both?

Putting (contributing) post-tax funds (nondeductible contribution) into a Traditional IRA and then moving that to Roth is called "backdoor" and is a conversion. It's a way to fund Roth when they don't qualify directly. This second step (the move to Roth) is not a Contribution, because it's the second step.

Recharacterize is when something is contributed, then the nature of that contribution needs to be corrected or changed. An example is putting a nondeductible contribution into Roth, then realizing you don't qualify, so you have it corrected by putting it as nondeductible Traditional IRA. It's still a contribution.

Form 5498 is evidence for money In.

Form 1099-R is evidence for money Out.

"I got 5498 Form that shows Recharacterized contribution amount $6,000"

From which type of account to which type of account?

"and then another 5498 form that shows Roth IRA conversion with the same amount $6,000."

The same amount, or is this is exact same funds?

In other words, did they:

1. Made a Roth contribution

2. Discovered they didn't qualify

3. Recharacterized that to Trad nondeductible IRA contribution

4. Backdoor Roth conversion

Because, as is pointed out, you also need to know if there is any other Trad IRA/SEP/SIMPLE IRA money or was this the only money, and they did a full Roth conversion of all funds not already in Roth? You are going to determine if this is a pro rata conversion (some is taxable, some is not).

[Mustapha Ratib · Accepted solution]

First thank you for getting back to me.

Taxpayer showing the following in his 8606:

Line 1- nondeductible contributions to Trad IRA for 2021: 6000

L2 : 39799

L3 : 45799

L16: 6000

L17: 6000

on year 2022 he received form 5498 IRA CONTRIBUTION INFORMATION:

4-Recharacterized contributions: 5906.41

5- FMV of account 0.04

7- IRA Type: IRA  (Trad IRA)

another 5498 form showing:

3-Roth IRA conversion acct: 5909.14

5-FMV : 36,686.40

7- IRA Type Roth IRA

10- Roth IRA contributions  6,000

for the Spouse form 8606 is Identical but different total basis.

Form 5498 year 2022:

1-IRA contributions :6000

5- FMV: 3.04

7- IRA Type Trad

Form 5498 year 2022

3- Roth IRA conversion: 6000

5- FMV: 47,086.68

7- Type IRA: Roth IRA

in this case are we using only IRA worksheet, and will feed to 8606, and do we need 1099-R which I don't have, and probably we need to process a 1099-R using proceries.

[Terry53029]

It would be very difficult to give you a step by step guide to enter a back door Roth in ProSeries. First you must have a good understanding of what a backdoor Roth is, and why people do them. You must know if client has any traditionally Ira's anywhere, and also if he has a basis in any of them. You start the process by entering the 1099R that he will receive, and fill out the 1099R worksheet. Be sure and go all the way down the worksheet to the bottom, answering all questions that apply. Keep filling all necessary worksheets until you get the answer on the 1040 line 4b that you expect. If he has NO traditionally Ira's any where except the one he contributed to and recharacterized. you would expect 1040 line 4b to be "0" if he has other Trad. Ira's it will not be "0"  

[Mustapha Ratib]

As far as I know Backdoor Roth is used by taxpayer to avoid the Income limit the IRS has on contributing to it, so they contribute to the Trad and right the way convert it to the Roth this way they are not limited by that $240,000 limit for MFJ. That is all I know.

So I wonder if this is something you can help with, working on it remotely, and of course you tell what your fees will be.

Thanks

Mo

[Mustapha Ratib]

The same amount, or is this is exact same funds? answer: same funds

if there is any other Trad IRA/SEP/SIMPLE IRA money or was this the only money, and they did a full Roth conversion of all funds not already in Roth? asnwer: Basically, every year they contribute to Traditional him and his wife then go back and convert it to ROTH IRA because they don't qualify based on their income.

Form 1099-R is evidence for money Out: question: does anytime you contribute to Traditional IRA and convert it to the ROTH IRA -like in my case- you are supposed to receive a 1099-R Form for that or that something that investement companies can skip?

[Terry53029]

It sounds like your clients do not have any other Trad. IRA's. But you need to ask to make sure. If it is true they have no other Trad. Ira's, then you will expect for the line 4b on the 1040 to be zero. like I said earlier you just start with the 1099R worksheet, and fill out completely answering all questions that pertain to your clients. When I do them (not very many) I wind up going back and forth a few times until I get the answer I want on the 1040. Note there will always be a 1099R