Entering information in TurboTax for excess ROTH IRA contribution in 2020

[tony8gj]

Me: Age age 59 as of 2.8.21

I contributed $7,000 in Jan 2020 to my Roth IRA, which I opened in 2014.

This 2020 contribution was $4,110 over the contribution limit for 2020 based on my AGI.

I entered the $7,000 in the TurboTax "Enter Your Roth IRA Contributions" box

TT asks me "Did You Open a Roth IRA Before 2020?" - I assumed the answer is "yes" because my Roth IRA was opened in 2014.

I entered "0" for the question "Enter Excess Contributions for prior years". Because I didn't.

I then entered in $4,711 "Contributions Withdrawn Before the Due Date" - this is the amount I calculated to remove the excess contribution of $4,110 and $601 in earnings. The amount of $4,711 was withdrawn out of the Roth IRA on 2.8.21

I noticed that this approach did not generate a 5329 worksheet in the return. Question: should it?

I also noticed the $601 earnings did not show up in TT. Do I wait for my RothIRA custodian to send me a 1099-R in the next few weeks for that $601 in earnings?

[DanaB27]

Yes, Form 5329 will be generate because of the 10% penalty on the earnings.

On "Contributions Withdrawn Before the Due Date" enter the contribution amount withdrawn only, do not include the earnings.

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click "edit"

You will get a 1099-R  in 2021 with codes P and J. This 1099-R will have to be included on your 2020 tax return and you have two options: 

• You can wait until you receive the 1099-R in 2021 and amend your 2020 return or
• You can report it now in your 2020 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

1. Open your return
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning)
6. Box 2 enter the earnings
7. Box 7 enter P and J 
8. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

 [Edited 2/10/2021 | 10:30am PST]

[dmertz]

Form 5329 is indeed required to be included.  Even though you are over age 59½, the Form 1099-R reporting a return of contribution from a Roth IRA is required to include code J to indicate that it's from a Roth IRA.  Because you are over age 59½, you'll need to claim an Other reason exception to the early-distribution penalty on the $4,711.  TurboTax will put this amount on Form 5329 line 2 with code 12.

[tony8gj]

Many thanks. Interestingly when the Roth IRA earnings get added to my 2020 AGI, that then reduces the max Roth IRA contribution even more. So, it seems wise to know what those excess contribution earnings were, add them to the AGI, then calculate again the max Roth IRA. Then withdraw enough from the Roth IRA to cover.

If not, there would be another 6% penalty in almost a never-ending cycle.

Thanks again. Your answers were super helpful.

[dmertz]

---

Interestingly when the Roth IRA earnings get added to my 2020 AGI, that then reduces the max Roth IRA contribution even more. So, it seems wise to know what those excess contribution earnings were, add them to the AGI, then calculate again the max Roth IRA. Then withdraw enough from the Roth IRA to cover.

If not, there would be another 6% penalty in almost a never-ending cycle.

---

Yes, that's an unfortunate consequence of being in the phase-out range for a Roth IRA contribution when there are gain attributable to the contribution.  Recharacterizing the excess to be a traditional IRA contribution instead of obtaining a return of the excess Roth IRA contribution would avoid this complication.

[tony8gj]

Best approach for me was to withdraw enough of an excess contribution amount to offset that 6%. Then in the 1099-R put the excess contribution amount+the earnings in Box 1 and then declare those earnings in Box 2a.

Then, put in J and P in Box 7. It's not optimal and I probably overpaid taxes by $10 to $50, but at least that 6% cycle ends. Doing it this way, I see the 5329 worksheet in TTax, and a 10% penalty on the earnings since I was 58 when I made the excess contribution in Jan 2020.

[taxbrau40]

[CORRECTED] - I was wondering if P is the correct code for Box 7 (thinking that Code 8 might be more appropriate for tax year 2020).  After finding the correct IRS documentation for 2020 (linked below), Code P indicates it is used for reporting excess contributions and earnings in the 2019 tax year.  Code 8 is used to report the same in the 2020 tax year.   

So, if filing taxes for 2020 and you want to report the excess + earnings in the 2020 tax year, you should put Code 8 (and J for early distrib). 

https://www.irs.gov/pub/irs-prior/i1099r--2020.pdf (Page 16/17)

[dmertz]

If the distribution occurred in 2021, code P is correct.  Code P on an 2021 Form 1099-R means taxable in 2020.  TurboTax's text in the drop-sown selection assumes it's a 2020 Form 1099-R.

Code P on a 2021 Form 1099-R has the same effect as code 8 on a 2020 Form 1099-R except in the case where there is tax withholding.  The tax withholding always applies to the year of the Form 1099-R.

[handan]

To quickly add to the above reply: You can access the 2021 form at this link:

https://www.irs.gov/pub/irs-prior/i1099r--2021.pdf

It shows that code P is for excess contributions made, and therefore earnings taxable, in 2020. 

[pchan185]

@DanaB27  - Hi Dana, thank you for your explanation - it was very helpful.  If you could be so kind, I could use your advice for a similar situation I am in.

I'm 36 years old and I overcontributed to my 401K in 2020 (I changed employers) so I reached out to my current plan administrator (same administrator as in 2020) to withdraw the excess contribution in 2021.  They sent me a check, which included my excess contribution + earnings - 10% early withdraw penalty for federal and state.

Do you recommend waiting until I receive my 2021 1099-R  and amending my 2020 return then or creating a 1099R and reporting the excess 401K contribution in 2020?

[DanaB27]

401k excess contribution is handled differently. If you know all the details then you can enter it on your 2020 tax return following the steps below. But you can also wait to an amend your return when you get the 1099-R.

To report the excess 401(k) contributions and subsequent distributions, a 2020 plan excess distributed in 2021 is reported on line 1 of your 2020 Form 1040:

1. Login to your TurboTax Account 
2. Click "Federal" from the left side of your screen
3. Scroll  down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2020 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

Please note for the Tax Year 2021 tax filing due April 15, 2022: 

2021 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2020. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2021.

@pchan185

[vb2k]

I have a similar situation. I over contributed to my ROTH IRA. Asked for return of excess and got it in March 2020. Excess contribution was $6000 and earnings were $4000. But I only got back about $9500. I think that extra $500 is withheld as taxes. Do I also get to report these withheld tax amounts in my 2020 tax return?

[DanaB27]

Yes, you should have gotten a 2020 1099-R since your withdrawal was in March 2020, it should list the tax withheld in box 4. 

Just enter the  2020 1099-R on your 2020 tax return and the taxes withheld will be applied towards any balance due in 2020:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”

@vb2k

[xxraltz]

Hi! I need some help. 

I over contributed to my Roth IRA. I contributed $4600 but I only earned $2000 this year. So $2600 is in excess. I've contributed to my 2020 IRA only after February 2021. 

After 1.5 months of waiting, my financial provider finally removed my excess contribution today, on May 14th. That is only 1 day before the tax deadline of May 17th. So I won't be getting a 1099-R. 

How do I report my Roth IRA contribution and the Removal of Excess Contribution? I read through this thread, but I don't know how to get started.

Greatly appreciate any help received!

[DanaB27]

You enter the Roth IRA contribution by following these steps:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Continue until you get to the penalty page and enter the amount of excess contribution withdrawn by the due date (without earnings).

You will get a 1099-R 2021 in 2022 with codes P and J for the withdrawal of excess contribution and earnings . This 1099-R will have to be included on your 2020 tax return and you have two options: 

• You can wait until you receive the 1099-R  2021 in 2022 and amend your 2020 return or
• You can report it now in your 2020 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2020?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter P and J 
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

@xxraltz