Correcting a 2020 Excess IRA contribution in Turbo Tax 2022

[jebalim]

I made a 6000$ excess Roth IRA contribution in 2020 but only realized that I exceeded the limit in 2022. 

In 2022,  I amended the 2020 and 2021 returns and paid 6% penalty for each of these years.

I removed the 6000$ from my Roth IRA before the end of 2022 so I received a 1099-R with Code J in box 7. 

(the broker did not calculate the taxable portion -- the 'taxable amount not determined' box is checked)

Reading Publication 590-A and many previous discussions on this website, the 6000$ early distribution should not be 10% taxed. the earning on the excess can be kept in the Roth IRA and are not subject to tax. 

Can you please confirm if I should do anything else to correct the excess ( should I report the earning ? )

The second issue I have is that the TurboTax tool is automatically applying 10% tax on this 6000$ distribution, I can't figure out how I can mark it as non-taxable. 

[DanaB27]

Yes, that is correct since you removed the 2020 excess after the 2020 extended due date you have a regular distribution (without earnings). You correctly reported the 6% penalty on your 2020 and 2021 returns.

 You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free.  Please make sure you include the 2020 excess contributions in your net contributions prior to 2022:

1. Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter all your 1099-Rs
4. Click "Continue" on the "Review your 1099-R info" screen
5. Answer all the questions and make sure you enter the net contributions prior to 2022 on the "Enter Prior Year Roth IRA Contributions" screen (include the 2020 excess contribution)
6. Answer the remaining question.

[dmertz]

Be sure to click the Continue button on the page that lists the Forms 1099-R that you have entered and enter or confirm your basis in Roth IRA contributions for years prior to 2022, including the excess contribution.  TurobTax will then calculate on Form 8606 Prat III that the distribution is nontaxable and therefore not subject to an early-distribution penalty.

[jebalim]

Thanks a lot for the reply. 

I did follow these instructions but TT still taxes the 6000$ ( see attached screenshot. the 27337 is a Traditional IRA to Employer 401K conversion )

Am I answering one of the questions incorrectly ?

for example : 

Withdraw from Taxpayer's Roth IRA Before 2022?

Unless you meet certain IRS qualifications, you may have to pay taxes or penalties on any withdrawals you've made from your Roth IRA.

I replied NO to this questions since I corrected the excess in 2022 ( not before 2022 )

thoughts ?

[dmertz]

You have failed to tell TurboTax your basis in Roth IRA contributions for years prior to 2022, resulting in TurboTax treating the Roth IRA distribution as taxable when, in fact, the distribution is not taxable under the circumstances.

[jebalim]

Thanks a lot for the hint. 

To properly tell TurboTax the basis of the IRA, should I include the excess contribution I made in 2020 ? or should I exclude that ? 

( I included it and may be that is the mistake I made )

[dmertz · Accepted solution]

Your Roth IRA basis carried into 2020 into 2021 and from 2021 into 2022 includes the excess $6,000 contribution made for 2020.  Be sure to proceed past the page that lists the Forms 1099-R that you have entered, indicate that you want TurboTax to track your Roth IRA basis, then make sure that TurboTax shows the correct Roth IRA contribution basis for years prior to 2022.  That amount will be $6,000 plus any other Roth IRA contributions you may have made prior to 2022 (minus any Roth IRA distributions you may have made prior to 2022).

[jebalim]

So I re-entered all my information from scratch to try to figure out what is going on. 

I think TT is adding the 6000$ withdrawal to my taxable income. ( I don't think it is applying 10% tax on that amount )

is that what the excess removal is considered ? ( this was a non-deductible contribution to my Roth IRA ) 

it seems like I am paying taxes twice on the same amount. 

[dmertz]

Check line 22 of Form 8606 to see that at least $6,000 is shown there.  If not, you have not entered your Roth IRA contribution basis as I previously indicated that you must do.