Explaining Roth --> Traditional Conversion in TaxAct?

[Psychstache]

So, I had a friendly chat with Fidelity. I did a dry run on my taxes and decided to recharacterize a portion of my 2015 contributions from Roth to Traditional. That got processed and had some questions about the amount, which they cleared up, but then this part of the chat occurred:

Rep: A recharacterization is not taxable, but it is reportable. For information on how you should report this recharacterized contribution to the IRS, please consult with your tax adviser, or refer to the instructions on Form 8606.

Me: Will I not be issued a revised 5498 this year documenting the recharacterization?

Rep: Great Question. We do not amend the 2015 form but we will issue a 1099-R and a 5498 for 2016, showing the recharacterization. These will be available in the first part of 2017. Since the year in which the Roth IRA contribution is reported is different from the year in which the assets were partially recharacterized, you will generally need to submit a letter of explanation to the IRS with your tax return detailing the asset movement between accounts.

Rep: You can read more about how to report a recharacterization in the instructions for the 8606 tax form or consut with a qualified tax advisor.

End scene


So, I have my return all complete and ready to go with Taxact, but can't figure out how to 'explain' the recharacterization to the IRS. I read form 8606, but that talks about Traditional to Roth recharacterizations, which is the opposite of what I did. I also can't find a way to enter info in the IRA section of Taxact to document this. Anyone run into this? How important is it to document the recharacterization in my tax return?

TIA

[Psychstache]

So I found this in the 8606 instructions under examples of Recharacterizations:

2. You made a contribution to a
Roth IRA and later recharacterized part
or all of it in a trustee-to-trustee transfer
to a traditional IRA.Report the
nondeductible traditional IRA portion of
the recharacterized contribution, if any,
on Form 8606, Part I. Do not report the
Roth IRA contribution (whether or not
you recharacterized all or part of it) on
Form 8606. Attach a statement to your
return explaining the recharacterization.
If the recharacterization occurred in
2015, include the amount transferred
from the Roth IRA on Form 1040,
line 15a; Form 1040A, line 11a; or Form
1040NR, line 16a. If the
recharacterization occurred in 2016,
report the amount transferred only in the
attached statement, and not on your
2015 or 2016 tax return.


bold mine.

So do I have to paper file now so that I can add a letter explaining the recharacterizations?

[johnny847]

I have filed with paper in the past because of this issue. I would use the IRS's Free Fillable Forms to file electronically, but they don't let me upload a miscellaneous PDF.

[terran]

Under Federal > Retirement Plan Income > Explanations and Statements there should be a Recharacterization Explanation for each you and your spouse. Based on the form 8606 instructions I entered something to the effect of: "Taxpayer [or Spouse] Terran [or Mrs. Terran] contributed $5500 to a Roth IRA on 02/02/2015 for the 2015 contribution year. On 02/09/2016 $2050 of the contribution was recharacterized by transferring $1909.51 to a traditional IRA in a trustee-to-trustee transfer. The traditional IRA contribution of $2050 was deducted on form 1040." It's kind of a PITA because you have to split the explanation up based on the number of characters that will fit per line.

[MrStubble]

TaxAct's answer center provides the following guidance, which I verified works:

IRA Recharacterization

Generally, you can recharacterize (correct) an IRA contribution or Roth IRA conversion by making a trustee-to-trustee transfer from one IRA to another type of IRA. Any recharacterized conversion will be treated as though the conversion had not occurred. Any recharacterized contribution will be treated as having been originally contributed to the second IRA, not the first IRA. The amount transferred must include related earnings or be reduced by any loss. In most cases, the related earnings that you must transfer are figured by your IRA trustee or custodian.

Trustee-to-trustee transfers are made directly between financial institutions or within the same financial institution. You generally must make the transfer by the due date of your return (including extensions) and reflect it on your return. However, if you timely filed your return without making the transfer, you can make the transfer within 6 months of the due date of your return, excluding extensions. If necessary, file an amended return reflecting the transfer.

A statement must be attached to your return explaining the recharacterization. This is can be entered in the TaxAct® program and the return will still be eligible for electronic filing.

Click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
Click Retirement Plan Income
Click IRA Distribution Explanation

[Psychstache]

Yes, I discovered that as well about 10 minutes after posting the thread (should put a little more time in before posting) and I am good to go. Taxes filed away. Thanks for the help all!!