File 1099-Rs for removal of 2017 excess Roth IRA contributions as part of 2018 taxes or need to amend 2017 return?

[KevinPM]

Apologies if this has been answered before, but there seems to be a lot of potential variation in people's situation. Here is the situation...

- Contributed to Roth IRAs for myself and spouse in March 2017.

- When preparing my 2017 return last year in February 2018, I realized that I ran afoul of the income limits and needed to resolve the situation.

- To resolve this, I removed the excess - the original contributions plus the calculated earnings for March 2017 - February 2018).

- I filed my 2017 return, following the various TT prompts and reported the contributions that had been made but were also withdrawn before the due date of the tax return (e.g., $5,500 contributed & $5,500 withdrawn each for me & spouse).

- Note: The removal of excess was not converted or recharacterized, it was just put into a brokerage (non-taxable) account.

- In February 2019, I received the 2018 1099-Rs for these "distribution" events which document the gross distribution, the taxable portion, and that $0 income tax was withheld (all correct). The distribution codes shown are: PJ.

When preparing my 2018 return, I entered the 1099-R information and TT informed me that I am supposed to amend my 2017 return. However, it also seemed to increased my tax bill for 2018. I am confused if I am supposed to handle this in my 2018 return or if I have to amend my 2017 return...

So, basically, I over contributed to Roths in 2017, then removed the money plus earnings in 2018 and haven't yet paid taxes on those earnings. I am not sure what I need to do to resolve the situation. Anyone know the procedure for this?

[DanaB · Accepted solution]

Yes if the contributions were for 2017 and you removed them with the earnings to avoid the excess contribution penalty then it is taxable in 2017 and you will have to amend your 2017 return if you didn't include it already when filing the original return.

 You will not need to include it on your 2018 return unless it shows tax withholding in box 4. TurboTax should ignore a code JP 2018 Form 1099-R other than to remind you that you should have already reported this on your 2017 tax return. 

From IRS Pub 590-A:

"For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made." 

Please see below how to amend your 2017 return:

https://ttlc.intuit.com/replies/6603004

[KevinPM]

Thank you. This makes sense. So, in this case, should my 2018 return still include those 1099-Rs that are being used on my 2017 amendment? As I did a T-IRA to Roth conversion in 2018, I know that there are separate 1099-Rs that I have to file for those contributions and I need to file some Form 8606s for this as well in my 2018 return. But do I also need to complete some Form 5329s for 2018 as well? Or only for my 2017 amendment as that would be the year in which the additional tax needed to be paid? Or not at all given that I withdrew all of the excess contributions for 2017, plus the earnings?

[DanaB]

The 1099-R in regards to the excess contribution only needs to be included on your 2017 return, that is where you will pay the additional tax on the earnings.

[KevinPM]

Thanks again. One last question... Are there any templates or guidelines available for the information / details to include in the explanation that is asked for / required for the "Explain the Return of Contribution" section? And also what details to include when it asks for the "Explanation of Changes" for the amended return? Any general guidelines would be helpful and appreciated...

[DanaB]

"Withdraw of excess contributions plus earnings to avoid penalty for excess contribution".

[ClareCA]

Dana, I am in the same situation and have amended my 2017 return, but I have an additional question and am hoping you can help.  I too contributed to a Roth IRA in 2017 and withdrew before the filing date in 2018, and I am amending my 2017 return to report the earnings.  My additional problem is this: in February, 2017, I opened the Roth IRA and contributed $6500 for the 2016 tax year.  All excess contributions were withdrawn in January, 2018.  What year do I report this excess contribution made in February, 2017, for the Tax Year of 2016, which is being reported on a 2018 1099R which I received in 2019?  The Code is just "J" and not "PJ" or "8J".  Many thanks in advance.

[DanaB]

Since the contribution wasn't withdraw by the due date of the tax return April 15 2017 for the tax year 2016, it will have to be include in the year you made the withdraw on your 2018 tax return. Make sure you enter the basis you had in the Roth IRA.

[ClareCA]

Thank you so much!