change ira recharacterization to excess withdrawl

[chris B22]

Last month feb 2020, I contributed 6,000 to my roth IRA for the year 2019. I live outside America and qualify for the foreign income exclusion act which made my taxable income zero. I was not aware that I could not contribute more than my income.  When I was filling out my taxes It made me aware that I had made an excess contribution to the tune of 6,000. At the time, the only option turbo tax gave me to get rid of the 6% penalty was to recharacterize the contribution as a traditional IRA. I filled my taxes and left it that way. Upon doing more research I do not qualify to contribute to traditional for the same reasons ( make too little) I would rather just withdraw the excess contributions. My questions are:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li..., 

1. How do I amend my 2019 filed tax returns and change my statement that I would "recharacterize the excess contribution to a traditional IRA" to simply "withdrawing the excess contributions"

2. Are there any extra forms I would need from my brokerage firm to submit to the IRS.

3. Since the markets have tanked my contribution of 6,000 is worth considerably less than what I put in, and I do not have any earnings. Should I withdraw the exact contribution amount or calculate the loss from my contributions and withdraw my contribution minus the loss and how would I do that.

4. Does anyone see any potential redflags in my plan that I am missing. 

[dmertz]

1.  Follow these general instructions on amending your 2019 tax return:  https://ttlc.intuit.com/community/tax-topics/help/how-do-i-amend-a-2019-return-in-turbotax/00/123845...  The result will be no IRA contribution.  If the recharacterized contribution was originally filed as a nondeductible traditional IRA contribution, You'll need to manually prepare a corrected Form 8606 to explicitly show $0 as your nondeductible traditional IRA contribution; TurboTax will not automatically print a Form 8606 that has nothing but $0 on line 1.  If the recharacterized contribution was originally deductible, you'll need to similarly prepare Schedule 1 explicitly showing $0 on line 19 and reflected on line 10, Other taxes.  With no taxable gains, no other changes will be present.

2.  No.  Your explanation statement with the amendment will take the place of the 2020 Form 1099-R that you will receive near the end of January 2021 and you'll be able to ignore this 2020 Form 1099-R when you receive it.

3.  The distribution amount needs to be the $6,000 adjusted for the loss.  Assuming that the money is still in the Roth IRA, the Roth IRA custodian should calculate the loss and the distribution amount.  If you actually did move the money to a traditional IRA by recharacterization, you'll need to do the calculation yourself and provide substantial explanation to the traditional IRA custodian to allow the traditional IRA custodian to correctly report the return of contribution on the 2020 Form 1099-R.

4.  What you propose is permissible and appropriate.

[chris B22]

Thank you. @dmertz 

On my taxes for the schedule 1 form there is already a $0 on line 19 as my income was already completely deducted. I will submit form 8606 with a $0 to show there was no nondeductable IRA contribution for 2019. 

I will also contact Etrade regarding calculating the necessary withdraw of contribution adjusted for the loss. Since I did not make any earnings I will not be subject to any taxes or penalties from withdrawing the funds from my Roth IRA early correct?

[dmertz]

Correct.