How Do I Enter an IRA Recharacterization?

Forum|Forum|4 years ago
June 24, 2022
3 replies
17 views

Folks:

Client's wealth manager funded a 2021 Roth IRA earlier this year. But the client's income is too high, so we need to recharacterize the contribution as a traditional IRA contribution and then do a Roth Conversion. I don't know how to enter this in Lacerte. Any guidance would be VERY welcome!

Thanks.

Micah

Lacerte Tax

This topic has been closed for replies.

T

TaxGuyBill

Level 15

Recharacterization means it is treated as if it was originally made into the other account. So enter a Traditional IRA contribution.

As for the conversion to a Roth, was that done in 2022? If so, that goes on next year's return, and the client will get a 1099-R.

M

msindc1Author

Level 5

Thanks, Bill.

But I'm afraid I'm still confused! A recharacterization involves three steps:

1. Contribution to wrong IRA.

2. Withdrawal from wrong IRA.

3. Contribution to correct IRA.

So does this mean that I record a Roth contribution of $6,000 AND a Traditional IRA contribution of $6,000? How do I reverse the wrong contribution?

As for the conversion, assuming a IRA contribution was done in March 2022 for 2021 and immediately taken out and moved into the Roth, the conversion counts as being done in 2022, right?

I enter $6,000 in the a traditional IRA Contributions field AND ALSO $6,000 in the Recharacterization field? Does the characterization entry go into the section where the incorrect payment is coming out or where the place where the money is

BobKamman

Level 15

Don't you just love the term "wealth manager" ? I think it means, someone who manages to get a piece of someone else's wealth, month by month or commission by commission, because they don't yet have enough of their own. Is it OK if I call myself a wealth manager? I'm just trying to help people manage keeping as much of their wealth away from the government as possible.

qbteachmt

Level 15

"How do I reverse the wrong contribution?"

You would do a corrective distribution, as a direct transfer from the Roth to a Trad IRA.

When all of those steps are done for the same tax year and before the due date of the return, it's as if the error never happened.

There will be a 2022 1099-R for that action from Roth (code P = previous year, so report it on 2021 1040), and there will be one for the IRA for the conversion, which is a 2022 activity.

Don't overlook any earnings.

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