Get your taxes done using TurboTax

Yes, you amended your 2020 tax return correctly to report the recharacterization and to pay the 6% penalty.

Yes you will also pay the  6% penalty for the 2020 contribution on your 2021 tax return. 

Yes, you do not pay the 6% penalty for the 2021 contribution since you withdrew the excess plus earnings before the due date.

You only will enter the 2021 contribution amount $6,000 as withdrawn on the penalty screen. Then TurboTax will only calculate the 6% penalty on the 2020 excess.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 (if it wasn't carried over).
6. On the penalty screen enter the 2021 contribution amount as withdrawn by the due date ($6,000).

Next year when you get Form 1099-R with code J for the 2020 excess contribution distribution you will enter it into TurboTax, this will be entered on Form 5329, and will show that the 2020 excess has been removed.

Also, you will get a 2022 Form 1099-R  in 2023 with codes P and J for the withdrawal of 2021 excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options:  

• You can wait until you receive the 2022 Form 1099-R in 2023 and amend your 2021 return or
• You can report it now in your 2021 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2022 Form 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything to the 2022 tax return but the withholdings will be applied to 2022.

To create a Form 1099-R in your 2021 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.