Excess contribution to IRA

To stop being taxed on the $3737 you need to remove this amount from your IRA.  If you remove this amount (and any earnings on this amount) before April 15, 2020 you will not owe the 6% penalty for 2019. 

To report that you removed this amount you report a substitute 1099-R using code P for Box 7 in TurboTax showing the amount has been removed along with any earnings and then you will only be taxed on the earnings since you did not receive a deduction for the $3737 being put in an IRA account.  You will receive a 10% on the early distribution of the earnings on the $3737.

 How to report a 1099-R in TurboTax

1. Open (continue) return if you don't already have it open.
2. Inside TurboTax, search for 1099-R and select the Jump to link in the search results.
3. Answer Yes on the Your 1099-R screen, then select Continue.
   • If you land on the Your 1099-R Entries screen instead, select Add Another 1099-R.
4. Select how you want to enter your 1099-R (import or type it in yourself) and then follow the instructions. You can add up to 20 1099-Rs.

You will receive a 1099-R for the distribution amount in 2020 which does not need to be included in your 2020 tax return since you already reported the distribution on your 2019 return.

If you do not remove this amount you will continue to owe the 6% penalty for over contributing to an IRA account until you remove the $3737 from your account along with any earnings on the $3737.

Thanks

if I put $10,000 in a traditional IRA (2019) and pay the 6% penalty on the excess of $3500 - is the penalty removed if I contribute $3000 or less in 2020 therefore only donating no more than the maximum allowable amount over a 2 year period? Thanks

Actually meant to say 'is the penalty discontinued' in 2020 after your total contributions are no more than $13000 over a 2 year period (2019 and 2020) ($6500 per year my max) Thanks again