When dealing with a distribution of excess contributions in TurboTax, the specific questions asked depend on what type of retirement account the distribution is from, what year the excess contribution was made, and how the Form 1099-R is coded. The flow of the interview is not the same for everyone, and it is likely that you are missing or incorrectly answering a key question early in the process. Your prior tax liability has no effect on this specific process.
Here are the steps to ensure you correctly report an excess contribution withdrawal in TurboTax:
- Identify the retirement account type: The questions you see will differ based on the account.
- Roth IRA: The process for correcting an excess Roth contribution involves reporting the withdrawal of the contribution and any associated earnings. The questions you see will be specific to IRA distributions.
- HSA: For a Health Savings Account (HSA), the process is different, especially for employer contributions.
- 401(k): For 401(k) plans, the corrections are handled differently than for IRAs. Sometimes, the employer corrects the excess contribution internally, and you may not receive a 1099-R for the excess amount itself.
- Enter the 1099-R correctly: You must enter the Form 1099-R you received from your financial institution exactly as it is.
- Box 7 Distribution Codes: Look for specific codes in Box 7 of your 1099-R, such as "8" (Excess contributions plus earnings/excess deferrals taxable in 2023) or "P" (Excess contributions plus earnings/excess deferrals taxable in 2024). These codes are critical for prompting the right follow-up questions.
- Tax Year of Distribution: For a withdrawal made in the current year, but for an excess contribution made in the previous year, you will likely receive a 1099-R with a "P" code. This is important to ensure the earnings are taxed in the correct year.
- Review your answers in the interview: The most likely reason you are not seeing the correct prompts is that you are answering an earlier question in a way that doesn't trigger them.
- You will want to first locate the 1099-R entry: Go to the "Income and Expenses" section and find where you entered your 1099-R information. If you've already entered it, review the entry carefully.
- Delete and re-enter: If you are unsure, delete the 1099-R and start over. This can help prevent any previously entered information from affecting the new flow.
- Use "Search" for specific forms: Instead of navigating manually, use the search bar to find and enter "1099-R" directly. This ensures you start at the correct place in the tax interview.
- Follow the interview prompts precisely: The exact wording of your responses is crucial.
"Did you withdraw your excess contributions...": You must answer "Yes" to this type of question to begin the process of reporting the withdrawal correctly.
- Prior-year excess: If the excess contribution was for a prior year, you must indicate this to trigger the correct handling for earnings taxation.
What about excess contributions without a 1099-R?
If your employer corrected an excess 401(k) deferral, they may add the excess amount to your W-2 wages instead of issuing a 1099-R. In this case, no additional action may be needed in TurboTax for the excess contribution itself.
For more information see:
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Terri Lynn
