Here is my situation and I really appreciate if you could please help me with some pointers.
- In 2018, I contributed to Roth IRA. In late 2020 I realized that I was not eligible to contribute.
- Immediately, I asked the custodian to return the excess contribution made ($5k). Also filed an amended return and paid the penalty of $300 for each year of such excess contribution.
Come 2020 taxes, I received 1099-R with Code J. Looks like I have to pay a penalty of 10% though it is really not a distribution but have withdrawn what was excess contribution.
Is this really a Code J requiring me to pay penalty or is there an exception. Please help.
You can always withdraw your own Roth contributions tax and penalty free.
Enter a 1099-R here:
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).
OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.
Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.
[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]
One of the followup questions will ask for your prior year** contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.
Note: **Prior year - any current year Roth contributions should be entered into the IRA contributions section. They will not show up in the prior years contributions but will be accounted for on the 8606 form that calculates the taxable amount.
Thank you for the quick response. After I made an entry as your suggested, now $5K shows up in line 22 of form 8606 and it removed the penalty. Is the value of 5K in line 22 a good confirmation that I am all set. Please let me know.