Contributed by: RachelR, FreeTaxUSA Agent, Tax Pro and Henry, FreeTaxUSA Agent, Tax Pro
This article applies to 2024 and later years
Sometimes you don’t complete the recharacterization until the tax year is already over. Here’s an example: You made a Roth IRA contribution for 2024 during the 2024 tax year. You don’t realize until March 2025 (when you are preparing your 2024 taxes) that you shouldn’t have done this. At that point, you initiate the recharacterization and conversion of the 2024 funds. The reporting will look slightly different in this case because the tax effects will be spread across 2 tax years.
If this is what you did, here’s how to report the backdoor Roth in the software for the year of the contribution (2024):
Enter the IRA Contribution
1) Follow this menu path: Deductions/Credits > Common Deductions/Credits > IRA Contributions (if the Deductions/Credits tab is gray and can’t be clicked, that just means you need to finish up the screens in the Income tab before you can access it). Answer “Yes” to the question, “Did you make any traditional or Roth IRA contributions during the year?” Answer for both you and your spouse, if applicable. Then answer the “Excess IRA Contributions” question on that page. It’s fairly rare to have something to enter there. Save and Continue.
2) Next, enter the amount of your original IRA contributions for the year. In this example, $6,500. Enter the amount in the box for the type of IRA you originally contributed to, even if the money is no longer in that type of account. In this example, our first contributions were to a Roth IRA. Then we recharacterized them to traditional, and then we converted them back to a Roth. But we’ll enter them in the Roth IRA box because that’s where they first began.
3) Further down on that page, it asks, “Did you recharacterize any IRA contributions?” You would choose “Yes” here.
4) The following page asks about your IRA recharacterizations. “Did you recharacterize any of the $6,500 (of Roth contribution) to a traditional IRA?” Yes, you did! Choose “Yes” here.
5) Fill in all of the details to explain the recharacterization: date of original contribution, date of recharacterization, amount of contribution recharacterized, and the total amount transferred (this may be more or less than the total recharacterized if the account had gains or losses). Then explain why you recharacterized. All of this information will be used to generate and attach a statement to your tax return, as required by the IRS. You won’t have a 1099-R yet that reports this information, but you can contact your financial institution to get the information if you don’t have it. Save and Continue.
6) The next page asks if you withdrew any contributions. Answer according to your situation. If all you did was this recharacterization plus the backdoor Roth, this would be “No”. Withdrawing is removing the contribution and treating it as though it was never made, which is not the same as converting. Save and Continue.
7) On the IRA Basis and Value page, you’ll enter any basis information you have in your IRA from prior tax years. If this is your first year contributing to a Roth, that will be $0. If you do have IRA basis from prior years (probably from contributions to a traditional IRA that you couldn’t deduct), you’ll get that information from Form 8606 from your prior tax returns and enter it here. You’ll also need to fill out the other boxes on the screen according to your situation. Save and Continue.
8) The next page is your IRA Deduction Summary. If you’re employing this backdoor Roth strategy, that is probably $0 as well.
That’s it for reporting the IRA contribution and the recharacterization for now.
As for the Roth conversion step – in this example, you won’t get the 1099-R for this until early 2026, because the conversion occurred in 2025. The 1099-R for the conversion will need to be reported on your 2025 tax return, essentially completing the other half of the reporting for this backdoor Roth.
Let’s take a quick look at the forms to make sure they’re accurately showing what happened during the year. On almost any screen in FreeTaxUSA, click on the 3 buttons at the top right of the screen, then choose “Preview Return” from the drop-down menu.
The first page you’ll see is Form 1040. Look at lines 4a and 4b for IRA distributions. Note that they are both blank. Since the recharacterization and conversion didn’t happen until after the tax year was over, they are not reported directly on this tax return. However, the recharacterization is reported here on a statement (see the “SEE STMT” note next to line 4a).
Next, find Form 8606 within the tax return. This form shows your nondeductible IRA contributions. The amount on line 14 ($6,500 in this example) becomes your “basis”, or the amount that counts against your future distribution and makes $6,500 of it not taxable.
You’ll report the other half of the backdoor Roth transaction next year on your 2025 tax return. When you receive the Form 1099-R showing the conversion you did, you’ll enter that on your 2025 tax return along with the $6,500 basis amount that carries over from Line 14 of the 2024 Form 8606. This will make it so that $6,500 of the conversion amount won’t show as taxable to you.
Finally, find the recharacterization statement. It should be toward the last few pages of the federal tax return. It includes all the information that you entered about your recharacterization. It will be filed with your tax return as required by the IRS.
Here’s a quick overview of what to expect next year when you’re doing your taxes:
- You’ll get a 1099-R with code R for the recharacterization from Roth to traditional.
- You’ll get a 1099-R, most likely with Code 2, showing the amount converted from traditional back to Roth.
- You’ll need to enter your basis from line 14 of the Form 8606 included with your 2024 tax return.
