Retirement tax questions

1. Earnings are not subject to the 6% penalty. Only the excess contribution is subject to the 6% penalty. You will have a penalty for 2018, 2019, 2020, and 2021 because the excess contributions from 2018, 2019, and 2020 were not removed by December 31, 2021.

In 2018 you will just enter your contribution under Deductions & Credits and TurboTax will give you a warning about the penalty and create Form 5329.

In 2019 you will enter your contribution and your prior year’s excess contribution ($6,500) during the interview in the Deduction & Credit section. TurboTax will calculate the penalty on Form 5329.

In 2020 you will enter your contribution and your prior year’s excess contribution ($6,500 + excess from 2019) during the interview in the Deduction & Credit section. TurboTax will calculate the penalty on Form 5329.

In 2021 you will enter your contribution and your prior year’s excess contribution ($6,500 + excess from 2019 + excess from 2020) during the interview in the Deduction & Credit section. On the penalty screen, you will enter the 2021 contribution amount you plan to remove by the due date. TurboTax will calculate the penalty on Form 5329.

For example, on your 2020 return, the steps are:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the 2020 Roth contribution amount 
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2018 and 2019.

2. You do not need to calculate the earnings for the excess contribution for the years 2018, 2019, and 2020. For the excess contributions from 2018, 2019, and 2020 you only need to remove the excess contribution amount as a regular distribution without the earnings. You will get a 2022 Form 1099-R next year and this will be entered on your 2022 tax return. Your code in box 7 will be either T or Q since it is a Roth IRA and you are older than 59 ½.

3. Yes, you can leave the earnings in the Roth account for the 2018, 2019, and 2020 excess contributions. 

4. Yes, TurboTax will walk you through the amendment and it is similar to the interview when filing your taxes with TurboTax.

5. It depends on your state if you will have to amend your state as well. But TurboTax will walk you through this.

6. Yes, TurboTax will fill out Form 5329 Part IV for the excess contribution.

7. No, you will not need Form 8606 when you amend your returns.

8. Yes, this is how the 2018 5329 form will look

For the 2021 excess contribution, you have until the due date to request the withdrawal of the 2021 excess contribution plus earnings.

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of 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 1099-R  2022 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 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 in 2022 tax return but the withholding will be applied to 2022.

To create a 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. Answer all follow up questions carefully.

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.

If you have any further questions please feel free to comment and we will be happy to assist you further.