I contributed $5k to my roth in 2016 and didn't realize until filing my taxes for 2017 that I was not eligible to make that contribution. I amended my 2016 return to pay the 6% penalty and removed the contribution + earnings in Feb 2018 before filing my taxes. I paid the penalty in 2017 as well and indicated that the excess contribution had been removed. I received a 1099R for 2018 coded J and when I enter it in turbo tax is it charging me a 10% penalty on amount earned. Why am I being double taxed on this?
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Because you did not receive a corrective distribution before the end of 2017, you 2017 tax return was also required to include a 6% penalty on this same excess unless it could be applied as a 2017 Roth IRA contribution. If it did not, you must amend your 2017 tax return to include the penalty.
The correction of this excess after the due date of your 2016 tax return is done by making a regular distribution of the amount of the excess, with no adjustment for earnings. The original excess contribution for 2016 became contribution basis in your Roth IRAs that is included on line 22 of Form 8606, so at least this much of your distribution will be nontaxable. Perhaps the additional amount distributed will also be nontaxable if you have contribution basis from earlier Roth IRA contributions, otherwise the additional amount will be taxable and subject to early-distribution penalty on your 2018 tax return.
Your 2018 tax return must include Form 5329 to show the excess carried into 2018 (line 18) and the amount of your 2018 distribution (line 20), eliminating the excess for 2018.
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