So, what happened here?
Alix Mann put $5,000 into a Roth IRA on March 1st, 2024. All good, right? Well, not exactly. A couple months later—on May 23rd—she realized her income was too high to actually qualify for a Roth IRA contribution. That happens more than you’d think. So now what?
Instead of taking a penalty hit, Alix called her bank and asked them to move that $5,000 over to a Traditional IRA. This is called a re-characterization, and yeah, it sounds fancy, but all it really means is: “Oops, put my money in the wrong type of account—can you fix that?”
The bank pulled the money out of her Roth and moved it into a Traditional IRA. During that short time, the money was in the Roth; it earned a little bit—$3. The bank tracks all this and sends Alix (and the IRS) some paperwork next year. She’ll get two forms:
- Form 1099-R (shows money coming out of the Roth)
- Form 5498 (shows money going into the Traditional)
That 1099-R will have a code “N” on it. That’s just the IRS’s way of saying, “Hey, this isn’t a regular withdrawal—it was a re-characterization.”
So, how does Alix report this?
Alix will report the Roth IRA Contributions (yep, even though the money ended up in a Traditional IRA—we’re reporting what originally happened). Declare the value moved over to the Traditional IRA.
Then, report the 1099-R form. As simple as that.
What about the tax impact?
This $5,000 Traditional IRA contribution is non-deductible—meaning she doesn’t get a tax break for it now, but that money becomes part of her IRA “basis.” So when she pulls it out in the future, she won’t pay tax on it again. That’s good to know.
When you enter her 1099-R, make sure to confirm that the distribution isn’t taxable. You can double-check that by reviewing her Form 1040:
- Look at line 4 to see that there’s no taxable amount.
- Line 10 will show that this wasn’t a deductible contribution either.
So what’s the big takeaway?
This whole thing makes it look like Alix never put money into a Roth IRA to begin with. It’s like the Roth part never happened. The IRS sees it as her putting money into a Traditional IRA from the start. So no penalties, no drama.
And now? Alix’s Traditional IRA has $5,000 of after-tax money in it. That amount gets added to her basis, and it’ll sit there growing until she’s ready to use it someday. Not bad for a little paperwork shuffle, right?
How if you take out the money much later…. like the following year?
You put $6,500 into a Roth IRA on March 1, 2023. Then in March 2024, you realize you made too much money to qualify for a Roth. So you call up your bank and ask them to recharacterize it into a Traditional IRA. They handle it, no problem.
Because the switch happened in 2024, you won’t see a 1099-R that year. That form shows up next year—in 2025—because that’s when the IRS processes the withdrawal (even though the money was for a 2023 contribution). When it does show up, it’ll have Code R in Box 7, which just means, “Hey, this was a 2023 contribution recharacterized in 2024.”
If you already entered the recharacterization when you did your 2024 tax return, you’re good. That 2024 1099-R is really just for your records. As long as you handled the recharacterization properly when doing your 2024 return, you don’t need to fix or amend anything. Just hang on to that form in case the IRS ever asks.
Need help walking through this for someone else? Just ask—seriously, this stuff looks complicated, but once you break it down, it’s pretty manageable. Ever notice how most “tax strategies” are just normal stuff with weird names?