Recharacterized in the Same Year

You may have contributed to a Roth IRA and then realized later in the year that you would exceed the income limit. You recharacterized the Roth IRA contribution as a Traditional IRA contribution and converted it to Roth again before the end of the year. Your IRA custodian sent you two 1099-R forms, one for the recharacterization and one for the conversion. This post shows you how to put them into the H&R Block tax software.

If you had done the recharacterizing and converting in the following year, you would have to split the tax reporting into two years by following Split-Year Backdoor Roth IRA in H&R Block, 1st Year and Split-Year Backdoor Roth IRA in H&R Block, 2nd Year. Now because you caught the problem soon enough before the end of the year, you can handle all of it in the same year by following this guide.

Here’s the example scenario we’ll use in this guide:

You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your income would be too high later in 2023. You recharacterized the Roth contribution for 2023 as a Traditional contribution. The IRA custodian moved $6,600 from your Roth IRA to your Traditional IRA because your original $6,500 contribution had some earnings. The value increased again to $6,700 when you converted it to Roth before December 31, 2023. You received two 1099-R forms, one for $6,600 and another for $6,700.

If you didn’t do any of these recharacterizing and converting, please follow our guide for a “clean” backdoor Roth in How to Report Backdoor Roth in H&R Block Tax Software.

If you’re married and both you and your spouse did the same thing, you should follow the steps below once for yourself and once again for your spouse.

Use H&R Block Download Software

The screenshots below are taken from H&R Block Deluxe downloaded software. The downloaded software is both less expensive and more powerful than H&R Block’s online software. If you haven’t paid for your H&R Block Online filing yet, consider buying H&R Block download software from Amazon, Walmart, Newegg, and many other places. If you’re already too far in entering your data into H&R Block Online, make this your last year of using H&R Block Online. Switch over to H&R Block download software next year.

1099-R for Recharacterization

We handle the 1099-R form for the recharacterization first. This 1099-R form has a code “N” in Box 7.

Click on Federal -> Income. Scroll down and find IRA and Pension Income (Form 1099-R). Click on “Go To.”

Click on Import 1099-R if you’d like. I show manual entries with “Enter Manually” here.

Just a regular 1099-R.

The 1099-R form for the recharacterization shows the amount moved from the Roth IRA to the Traditional IRA in Box 1. The taxable amount is 0 in Box 2a and the “Taxable amount not determined” box isn’t checked. The code in Box 7 is “N.”

The “IRA/SEP/SIMPLE” box may or may not be checked on your form. It isn’t checked in our form.

Not a retired public safety officer.

We like to hear that.

You’re done with the first 1099-R form. Click on “Enter Manually” to add the second one if you don’t already have both 1099-R forms imported.

1099-R for Conversion

The 1099-R for the Roth conversion has either a code “2” or code “7” in Box 7.

The second 1099-R form is also a regular 1099-R.

It’s normal to see the conversion reported in Box 2a as the taxable amount when Box 2b is checked to say “Taxable amount not determined.” The code in Box 7 is “2″ when you’re under 59-1/2 or “7” when you’re over 59-1/2.

The “IRA/SEP/SIMPLE” box is checked on this 1099-R form for the Roth conversion.

Did not inherit it.

Converted, Did Not Roll Over

This is an important question. Read carefully. Answer No, because you converted, not rolled over.

Now answer Yes, you converted.

We converted all of it.

It’s safer to answer “Yes” here because you can always say your basis was zero when the software asks you what it was.

The refund meter drops a lot at this point. Don’t panic. It’s normal and only temporary. It will come back up after we continue.

You are done with one 1099-R. Repeat the above if you have another 1099-R. If you’re married and both of you converted to Roth, pay attention to whose 1099-R it is when you enter the second one. You’ll have problems if you assign both 1099-R’s to the same person when they belong to each spouse. Click on “Finished” when you are done with all the 1099-Rs.

H&R Block has a few more questions.

The wording is confusing here but you should answer “Yes.” You recharacterized a Roth IRA contribution as a Traditional IRA contribution. It counts.

H&R Block will wait until you also enter your 2023 contribution. Your refund meter is still depressed but don’t worry.

Roth IRA Contribution Recharacterized to Traditional

Click on Federal -> Adjustments. Find IRA Contributions. Click on “Go To.”

Answer “Yes” because you contributed to an IRA for the year in question.

Check the box for Roth IRA because you originally contributed to a Roth IRA before you recharacterized your contribution.

Enter your original contribution amount. It’s $6,500 in our example.

Answer Yes because you recharacterized the contribution.

The amount here is relative to the original contribution amount. If you recharacterized the whole thing, enter $6,500 in our example, not $6,600 which was the amount with earnings that the IRA custodian moved into the Traditional IRA.

The IRS requires a brief statement to describe your recharacterization.

Leave the boxes blank because you recharacterized before the end of 2023.

The box should be blank or zero when you emptied all your Traditional IRAs after converting 100% to Roth. If you had a few dollars of earnings after you converted and you left them in the account, get the value from your year-end statements and put it here. The software will apply the pro-rata rule.

No excess contribution.

0 in Traditional IRA deduction means it’s nondeductible. If you see a deduction here it means the software thinks you qualify for a deduction. You don’t have a choice to decline the deduction. Click on Next. Repeat for your spouse if both of you contributed to a Roth IRA for 2023 and then recharacterized before the end of 2023.

Now the refund meter should go back up.

Taxable Income

You’re done with the two 1099-R forms and your Roth IRA contribution recharacterized to Traditional. Let’s look at how they show up on your tax return. Click on Forms on the top and open Form 1040 and Schedules 1-3. Click on Hide Mini WS. Scroll down to lines 4a and 4b.

Line 4a shows the sum of your two 1099-R forms. It’s $13,300 in our example ($6,600 recharacterization plus $6,700 conversion). This is normal. Line 4b shows that $201 is taxable when we expect it to be the $200 in earnings (contributed $6,500, converted $6,700). This is also normal due to rounding.

Form 8606 shows these for our example:

Line #	Amount
1	6,500
3	6,500
5	6,500
13	6,499 (due to rounding, should be 6,500)
14	1 (due to rounding, should be 0)
16	6,700
17	6,499 (due to rounding, should be 6,500)
18	201 (due to rounding, should be 200)

Switch to Clean Backdoor Roth

You avoided having to split your IRA contribution and Roth conversion in two different tax returns by recharacterizing in the same year and converting before December 31. Still, you had to do the extra work with your IRA custodian and follow all these steps in this guide when you do your taxes.

It’s much better to go with a “clean” backdoor Roth from the get-go. If there’s any possibility that your income will be over the limit again, simply contribute to a Traditional IRA for 2024 in 2024 and convert it to Roth in 2024.

You’re allowed to do a clean backdoor Roth even if your income ends up below the income limit for a direct contribution to a Roth IRA. It’s much simpler than the confusing recharacterize-and-convert maneuver. Then you only need to follow our guide for a clean backdoor Roth in How to Report Backdoor Roth in H&R Block Tax Software.

Troubleshooting

If you followed the steps and you are not getting the expected results, here are a few things to check.

Fresh Start

It’s best to follow the steps fresh in one pass. If you already went back and forth with different answers before you found this guide, some of your previous answers may be stuck somewhere you no longer see. You can delete them and start over.

Click on Forms and delete IRA Contributions Worksheet, 1099-R Worksheet, and Form 8606. Then start over by following the steps here.

Conversion Is Taxed

If you don’t have a retirement plan at work, you have a higher income limit to take a deduction on your Traditional IRA contribution. If you have a retirement plan at work but your income is low enough, you are also eligible for a deduction on your Traditional IRA contribution. The software gives you the deduction if it sees that your income qualifies. It doesn’t give you the choice of making it non-deductible. You see this deduction on Schedule 1 Line 20.

Taking this deduction makes your conversion taxable. The taxable Roth IRA conversion and the deduction for your Traditional IRA contribution offset each other to create a wash. This is normal and it doesn’t cause any problems when you indeed don’t have a retirement plan at work or when your income is sufficiently low.

If you actually have a retirement plan at work, maybe the software didn’t see it. Whether you have a retirement plan at work is marked by the “Retirement plan” box in Box 13 of your W-2.

Maybe you forgot to check it when you entered the W-2. Double-check the “Retirement plan” box in Box 13 of your (and your spouse’s) W-2 entries to make sure it matches the W-2.