Excess Roth IRA contribution in 2019 and withdrawal partially before 2020 tax due day

Forum|Forum|5 years ago
March 22, 2021
14 replies
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I have an excess of 6000 Roth IRA in 2019, when I prepared the tax return in Feb 2020, I found that so I withdrew that 6000 in Feb 2020. That was the first time I need handle and didn't know I need to withdraw the earning too. This year I received the 1099R with the code J, so I called my financial institution and requested a recode, but they said they can't. I do the calculation the total contribution and earning is $7391. The $6000 withdrawal on Feb 2020 may including the 2019 contribution: $4870 and the earning $1129. That means I still have $ 1392 excess contribution for 2019 tax year. What do I need to do for my tax return? Prepare a substitution 1099R, instead of using the one financial institution sent to me, amended my 2019 tax, and pay the 6% of the excess 1392 and the earning of 1129, and then report the excess 1392 on 2020 tax and also withdrew the excess and the earning ASAP.

Or just treat that as ordinary distribution, pay more tax? I know it's a little complicated.

Best answer by macuser_22

so how to deal with the 1099 r that my financial institution sent to me

You can always withdraw your own Roth contributions tax and penalty free.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

One of the followup questions will ask for your prior year** contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.

Note: **Prior year - any current year Roth contributions should be entered into the IRA contributions section. They will not show up in the prior years contributions but will be accounted for on the 8606 form that calculates the taxable amount.

macuser_22

Alumni - Champ

@David0506 wrote:

I have an excess of 6000 Roth IRA in 2019, when I prepared the tax return in Feb 2020, I found that so I withdrew that 6000 in Feb 2020. That was the first time I need handle and didn't know I need to withdraw the earning too. This year I received the 1099R with the code J, so I called my financial institution and requested a recode, but they said they can't. I do the calculation the total contribution and earning is $7391. The $6000 withdrawal on Feb 2020 may including the 2019 contribution: $4870 and the earning $1129. That means I still have $ 1392 excess contribution for 2019 tax year. What do I need to do for my tax return? Prepare a substitution 1099R, instead of using the one financial institution sent to me, amended my 2019 tax, and pay the 6% of the excess 1392 and the earning of 1129, and then report the excess 1392 on 2020 tax and also withdrew the excess and the earning ASAP.

Or just treat that as ordinary distribution, pay more tax? I know it's a little complicated.

Sorry, but if you did not have the excess AND earnings returned as a "return of contribution" that would result in a 1099-R with a code PJ, then it is to late to do it now. In this case the excess will result in a 6% penalty on 5329 form but the earnings stay in the account. (NOTE: many taxpayers intentionally get a normal distribution (code J) of the excess and pay the 6% if the earnings exceed the 6% penality - they are ahead to keep the earnings.)

6% of $6000 is a $360 penalty and your earnings were $1,391 - pay the $360 and keep the $1,391 - you are ahead and made a profitable error.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**