Do I need to amend 2016 AND 2017 taxes if I withdrew excess 2016 Roth IRA contributions in Mar2018?

[Carl]

You don't need to amend anything really. You got a 2018 1099-R for the withdrawal. Just enter that 1099-R *exactly* as printed and then pay attention to the screens that will follow so you correctly identify what the withdrawal was for.

[vee_gee]

I've done that. However, I got one 1099-R for multiple years of excess Roth IRA contributions withdrawn in 2018, with different distribution codes identifying the years. I know I have to pay 2 yrs of penalty for the 2016 excess contribution. The Roth Custodian did not determine taxable income for 2016 and no tax withheld (box 2a and 4 are blank for distribution code J), so I have to figure out and pay all that with Form 5329 according to my Custodian. I assume that gets filed with an amendment 1040X for 2016. But since I earned something on the 2016 excess contributions in 2017 also, I am wondering if the 2016 excess requires amending 2017 taxes.

[Carl]

If you have a 1099-R for 2016, then yes you need to amend. Same if you got a 1099-R for 2017. But if it's clearly a 2018 1099-R, then there's no amending of anything.

[dmertz · Accepted solution]

If you didn't report the excess 2016 Roth IRA contributions on your 2016 and 2017 tax returns, you must amend those to include Form 5329 to report the excess and pay the 6% excess contribution penalty for each of these years.  Otherwise, nothing needs to be amended on your 2016 and 2017 tax returns.

The distribution of the excess in 2018 has no bearing on your 2016 and 2017 tax returns, it only affects your 2018 tax return by reducing or eliminating the excess carried into 2018.  This is handled on 2018 Form 5329

However, it seems wrong that you would get more than one Form 1099-R for the corrective distribution if only an excess contribution for 2016 was involved.  Please elaborate as to whether you made a subsequent excess Roth IRA contribution for 2017.

[vee_gee]

I did not get more than one 1099-R form (or any 1099-R form prior to 2018). I got a single 1099-R in 2018. It has entries for multiple years of excess Roth contributions, all of which were withdrawn in March 2018. Here's why -

I did not know that the AGI imposed a limit on Roth IRA contributions. So all these years of contributing to Roth, I never entered my Roth IRA contribution amounts in my tax filings as (I thought) they were post tax investments like my other stocks/MFs. I did not ever exceed the annual allowed amount any year (not counting the AGI connection). My AGI would not have limited my Roth contributions till 2015. But in 2016, my AGI crossed into the range where I was not allowed to contribute the full amount. Same for 2017 (but I was unaware of this limitation). So when I made Roth contributions in 2017, I did not know that I had already erred in 2016. I learned in early 2018 that AGI affects Roth IRA contributions. So I immediately withdrew the excess 2017 contribution (before the 2017 tax filing deadline). I also withdrew the excess for 2016 at the same time. I was told that I would receive 1099-R for excess contributions for those years in 2018. Since I did not have any figures for earnings related to those excess contributions, I did not enter anything in the 2017 filing and decided to wait to get the 1099-R before filing an amendment for 2016 taxes (which I was sure I had to do due to the late withdrawal of the excess).
Hope this clarifies the situation.

[dmertz]

What is the code (or codes) in box 7 of the Form 1099-R?

[vee_gee]

J and PJ for the entries for 2016 and 2017 respectively.
Box 2a and Box 4 are blank for the J entry, with Box 2b checked.
Box 2a and Box 4 have net amounts for the PJ entry (amount in box 4 is 10% of the amount in 2a).
Box 1 has amounts for both the years.

[dmertz]

OK, the you did get two Forms 1099-R (even though they might be on the same sheet), one with code J and the Other with codes P and J.  That makes sense now.

Your 2016 tax return needs to be amended to report the 2016 excess contribution adding 2016 Form 5329 calculating the 6% penalty.  Your 2017 tax return return needs to be amended to add the code PJ 2018 Form 1099-R to include the box 2a amount in income and to include 2017 Form 5329 to again report the 6% excess-contribution penalty on the excess still in there from 2016 and to calculate the 10% penalty on the box 2a amount.

You'll also need to enter the code PJ 2018 Form 1099-R on your 2018 tax return to get credit for the tax withholding on box 4.  The code J 2018 Form 1099-R must also be reported on your 2018 tax return with the zero taxable amount calculated on Form 8606 Part III and to reduce the excess contribution on Form 5329 carried in from 2017 to zero.

[vee_gee]

Thank you very much.
This confirms that I must first do 2016 Form 5329 and amend the 2016 taxes.
Form 5329 for 2017 has questions about 5329 amounts for 2016 which I will then be able to provide in addition to the PJ amounts for 2017 excess. That should help me amend the 2017 taxes.
I've entered all the amounts from the 1099-R in my 2018 filing and the only figure that affected anthing was the Box 4 amount from the PJ entry which got included in the computation for line 16 on the 1040 for 2018.

[vee_gee]

[Deleted duplicate posting]

[dmertz]

Both the code J and the code PJ Forms 1099-R need to be entered into 2018 TurboTax.  Entering the code J Form 1099-R will eliminate the penalty on 2018 Form 5329 Part IV by appearing on lines 20 and 21 to be subtracted from line 18 to leave zero on line 22.

[vee_gee]

Yes, I see it now. Didn't think to look at 2018 Form 5329. Thanks.
At times like these, I wonder if I should go back to filing taxes on paper so I would be forced to understand (?) what's happening with all the numbers I am entering on various forms. When the software does it behind the scenes, I remain dumb :(. Thank you for all your enlightenment.

[vee_gee]

I was about to mail my 1040X for 2016 but I believe that I am under reporting the income. On the 2016 F5329, I'd only entered the 6% tax/penalty on the excess contribution for 2016, which I then put on line 10 on 1040X. I showed no other income difference from my 2016 tax filing. But I believe I need to enter an income amount on line 1 of 2016 F5329. Box 2a on 1099-R entry for 2016 (J) is blank (box 2b is checked). However, the amount in Box 1 is larger than my excess Roth IRA contribution. Do I just put the difference of Box 1 (1099-R) and 2016 excess Roth contribution as the taxable distribution/income on line 1 of F5329? Then add 10% of that (line 4) to the amount I have on line 10 on 1040X?

I did not make any other Roth contributions or get any distributions besides this (I have only one Roth account).

[vee_gee]

Forgot to say that if the amount I computed above for Line 1 of F5329 is correct, then my AGI would go up on 1040X (line 1) by that amount too.