Retirement tax questions

a)Yes, you will report the withdrawn contributions and earnings on your 2020 tax return (see letter c answer).

b) Yes, Form 5329 is required and will be created by TurboTax.

c)Yes, you will need to indicate in the contributions section that you withdrew the excess contribution otherwise TurboTax will still calculate the 6% excess contribution tax.

You will get a 1099-R  in 2021 with codes P and 1. This 1099-R will have to be included on your 2020 tax return and you have two options: 

• You can wait until you receive the 1099-R in 2021 and amend your 2020 return or
• You can report it now in your 2020 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 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning)
6. Box 2 enter the earnings
7. Box 7 enter P and 1
8. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.