Get your taxes done using TurboTax
@dmertz I tried to finalize my return yesterday and ran into a ton of issues with the Form 5329 that TurboTax generated, where the entries didn't make sense. I think I fixed it now, but could you please take a look as well to validate before I file?
After a couple of hours of trial and error, I managed to get a reasonable-looking form 5329 by making the following changes in TurboTax:
1. At one point, TurboTax asks you to enter "Your Excess Roth IRA contributions for Prior Years". Initially, I put down $3,050 (since that was the excess for my 2021 Roth IRA) but then I noticed I was being charged a 6% penalty even though I withdrew that excess before the 2021 tax return deadline.
So, I figured what TurboTax actually meant was "Your Excess Roth IRA contributions for Prior Years, that have still not been withdrawn" -- since I withdrew all $3,050, I changed my entry to $0 and the 6% penalty went away as expected.
2. As mentioned before, I wasn't getting charged a 10% penalty for the $22.66 earnings prior to Dec 29 2022, which didn't make sense. I finally realized why this was happening:
After I tell TurboTax that I made early withdrawals from my Roth IRA, it brings me to a section that says "Let's see if we can reduce your early withdrawal penalty" where it basically lists a bunch of possible exceptions to the 10% penalty. One of the boxes says "Corrective distributions made on or after Dec 29 2022". Initially, I entered $4,464 in that box, since that's what I received from my April 2023 withdrawal from my 2022 Roth IRA. I did so because both the IRS and TurboTax seem to define "distribution" as "returned contribution + earnings". However, for some reason, TurboTax seems to expect ONLY the earnings in this particular box, which in this case is $0 (since I made a loss).
i.e. If I set "Corrective distributions made on or after Dec 29 2022" to be $4,464, TurboTax seems to do $23 - $4,464 = less than $0, therefore there were no actual earnings before Dec 29 2022, therefore there is no 10% penalty.
Once I changed "Corrective distributions made on or after Dec 29 2022" to be $0 (indicating that my entire $23 earnings were received before Dec 29 2022), then I correctly get charged a 10% penalty on my $23 earnings (i.e. $2).
I have attached a pic of my form 5329 generated by TurboTax (with sensitive info redacted) -- would you mind taking a look and confirming that there are no obvious issues before I file?
