Retirement tax questions

The total contributions you make each year to all of your traditional IRAs and Roth IRAs can't be more than:

• $6,000 ($7,000 if you're age 50 or older), or
• If less, your taxable compensation for the year

Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. 

To avoid the 6% tax on excess contributions, you must withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.

Please request a withdrawal of excess contribution plus earnings with your financial institute.

The earnings will be included in your taxable income on your 2020 tax return. Since you are under 59 ½ then you will have an 10% early withdrawal penalty on the earnings.

You will get a 1099-R 2021 in 2022 with codes P and J (for Roth IRA) or 1 (for traditional IRA) for the withdrawal of excess contribution plus earnings. 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  2021 in 2022 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. Answer "Yes" to "Did you get a 1099-R in 2020?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2 enter the earnings
8. Box 7 enter P and J (for Roth IRA) or 1 (for traditional IRA)
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.