Do I need to amend 2017 taxes if I removed excess 2017RothIRA contributios in Mar2018? I've entered Box 2a and 4 amounts from 2018 1099-R (PJ) in 2018 filing.

[dmertz · Accepted solution]

If the box 2a amount from your code PJ 2018 Form 1099-R was already included on line 15b of your 2017 tax return, you do not need to amend.  Otherwise you must amend your 2017 tax return to add this income by entering this form into TurboTax, making sure to indicate in the follow-up that it is a 2018 Form 1099-R.  You must also enter this 2018 Form 1099-R into 2018 TurboTax to get credit on your 2018 tax return for the box 4 tax withholding.

[vee_gee]

Thank you. I did not put anything about Roth IRA withdrawal in 2017 tax filings as I didn't know how to calculate the taxable income on the earnings from the excess contributions before they were withdrawn (line 15b was blank in 2017 filing). Given that and the fact that I've entered the appropriate amounts from 2018 1099-R in the 2018 tax filings (not submitted yet), do I need to file 1040X for 2017 BEFORE filing my 2018 taxes? So the IRS knows that the PJ amount in the 2018 filing has been accounted for via a 1040X filing for 2017? Since I only owe the 10% additional tax on the excess ROTH contributions for 2017, I assume I don't need to file Form 5329 for 2017.

[dmertz]

I probably makes sense to amend your 2017 tax return first.  If there is no tax withholding shown in box 4 of the code PJ 2018 Form 1099-R, 2018 TurboTax will ignore this Form 1099-R other than to remind you that any earnings shown in box 2a of this Form 1099-R were includible in income on your 2017 tax return.  If there are no earnings shown in box 2a, you don't need to amend your 2017 tax return.

[vee_gee]

Box 2a on 2018 1099-R (PJ) is not blank and Box 4 shows 10% of box 2a. So, based on your earlier comment, I'll need to amend my 2017 taxes.

[dmertz]

Yes, the amount in box 2a is subject to tax an early-distribution penalty on your 2017 tax return, so your amendment will also include 2017 Form 5329.  The amount in box 4 will be included on line 16 of your *2018* Form 1040, not as tax withholding on your 2017 amendment.

[vee_gee]

Yes, Box 4 is included in the total for line 16 for 2018. Instructions for Form 5329 seem quite confusing to me as they do forward and backward references and separate 5329 forms need to be filed for specific years. Made worse by my own folly of being ignorant for multiple yrs about the relationship of AGI and Roth IRA contribution limits.

[dmertz]

Congress made this confusing by passing the law requiring that the gains be taxable on the tax return for the year in which the contribution being returned was made instead of on the tax return for the year in which the distribution was received.  TurboTax can only properly provide tax treatment that is consistent with the tax code.

[vee_gee]

Thank you for your patience.

So, since tax for the 2017 earnings due to excess Roth contribution has already been paid (withheld) (amount included in calculation of total in line 16 of 2018 1040 matches Box 4 of 1099-R PJ), should I be paying anything with the 1040X for 2017 on account of this earning?

AFAIK, other than the 10% tax, there is no penalty if the entire excess was withdrawn before tax filing deadline for the year.

[Instructions 5329 for 2017 state:
You can withdraw some or all of your excess contributions for 2017 and they will be treated as not having been contributed if (I added #s for clarity):
1. You make the withdrawal by the due date, including extensions, of your 2017 tax return; and
2a.You withdraw any earnings on the withdrawn contributions and
2b. include the earnings in gross income (see the Instructions for Form 8606 for details).
3. Also, if you hadn’t reached age 59 1/2 at the time of the withdrawal, include the earnings as an early distribution on line 1 of Form 5329 for the year in which you report the earnings.]

From the above, 1 and 2a are true. 2b is not true as I did not report any earnings from Roth in 2017 filing. TurboTax for 2018 has NOT included any earnings from the above in the 2018 Form 5329 (I checked the worksheet), though the tax withheld is included on line 16 of 2018 1040). So, 3 is not true (I am not 59 yet).

So, I file the 2017 1040X only to report the earnings (2b above) (via form 5329 for 2017?) and not to pay additional taxes with the amendment?

[dmertz]

Your 2017 tax liability resulting from the distribution of the earnings has NOT been paid.  The tax withholding does not apply to any particular item that is generating your tax liability and in this case is credited on your 2018 tax return, not on your 2017 tax return.  (For this reason it usually makes no sense to have taxes withheld from a return of contribution.)

Whatever additional income tax and early-distribution penalty results from the earnings reportable on your 2017 tax return WILL need to be paid with your amendment.  The taxes withheld, credited on your 2018 tax return, will simply decrease your 2018 balance due or increase your 2018 tax refund and will have no effect on your 2017 amendment.