Entering information in TurboTax for excess ROTH IRA contribution in 2020

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On "Contributions Withdrawn Before the Due Date" enter the contribution amount withdrawn only, do not include the earnings.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

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.

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.

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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.

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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.

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.

[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)

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.

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. 

@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?

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

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?

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

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!

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

Hi Dana,

For,

1. Box 1 enter total distribution (contribution plus earning)
2. Box 2a enter the earnings

What if I had a loss? Should I do (contribution plus loss)

Just making sure.

For a loss box 1 will be contribution minus loss and 2a will be $0

@xxraltz

Hello,

My husband and I contributed after tax $7,000 each to Trad IRA Accts and then converted to Roth IRA. We received 1099-R in the amount of $7,000 each. We had an excess contribution of $1,791 and we immediately withdrew it, generating a loss of $10.36 on our Fidelity account.

I have entered both 1099-R into TurboTax and I can see the $14,000 under IRA Distributions on my 1040. I have also answered the question about withdrawing the excess before tax date. The Adjustments to income from Schedule 1, line 26 shows $12,209 making my adjusted gross income $1,791 higher.

How do I fixed this? 

Your help is greatly appreciated!

Thanks!

Monica

Doing a backdoor Roth conversion is a two-step process.

Step 1:  Enter the Non-Deductible Contribution to a Traditional IRA

Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA

Line 20 on Schedule 1 should be blank.

Click this link for steps on How to Enter a Back-Door Roth Conversion.

Hello, 

I had contributed 6K into a Roth IRA in 2021 and accidentally went over the income limit. For my 2021 taxes this was not reported at all since the amount was using after-tax dollars. In 2022 I had removed that amount, as advised to do so since I was over the limit that was able to contribute. 

Since the market went down the amount was only equal to $4500 when it was taken out. I had a 1099-R with J in box 7 for 2022 (gross distribution filled by no taxable amount determined). When I enter this document on my tax return it says I now owe $1500 because of it and then I keep filling out the additional questions stating that I contributed 6K excess before 2022 and then it asks how much of the excess credit of $1500 do I want to apply to my 2022 IRA contributions. How does this make sense, the $1,500 is actually a loss I incurred? Do I just enter 0? Do I need to ammend my 2021 return? There were no gains so I am not sure if this impacts the amount. Is there anywhere else I need to document this outside of the 1099-R in turbotax?

It depends.  Did you report a $4500 distribution or $6000?  If you only reported $4500, then there is a deficit of $1500 that still need need to be withdrawn.   Report the full amount of $6000.  Did your 1099R only list $4500 or the full amount?

@rlsiegel78 

@DaveF1006  

The reason it is $4500 and not $6000 is because there was a market downturn and there was a $1500 loss on the money in the ROTH IRA

The distributions when I took the money out was thus $4500 and turbotax is still wondering when I will declare the $1500 loss. Should I still say I am declaring 0$ to my 2022 contributions? How can I report the loss?

I dont need to ammend anything for 2021 right? This loss was not reported as it was not incurred until I took out the distributions in 2022

@rlsiegel78 , in the Roth IRA contribution section of 2021 TurboTax you should have indicated that you had $6,000 of contribution returned, eliminating the excess from your 2021 Form 5329.  In required explanation statement you would have indicated that the distribution to accomplish the return of the $6,000 was $4,500 due to investment losses.  Nothing regarding this return of contribution should appear on your 2022 tax return.  You should not see the $1,500 anywhere on your 2022 tax return.

"turbotax is still wondering when I will declare the $1500 loss."

Where do you see that?  Did you mistakenly indicate that you had only $4,500 of the contribution returned and $1,500 is incorrectly appearing on 2022 Form 5329 line 18 (carried over from Part IV of your 2021 Form 5329 which should not have anything in it)?

The $1,500 loss is not reportable other than mentioning it in the explanation statement that should have been included with your 2021 tax return.

I did not sell or remove the contribution in 2021. The excess contribution of 6K was done in 2021 but the removal of it was done in 2022 (only removing $4500 because of $1500 loss). The distribution is then reported in 2022 based on the 1099-R I received. 

I did not get a 5329. 

@dmertz 

I would still report the amount in Box 1 of the 1099R as $6000.  This way, this shows that the entire contribution was withdrawn and you satisfied the withdrawal requirement.  Meanwhile, you cannot a declare a taxable loss of value from your retirement portfolio because these have already received tax-favored treatment.

@rlsiegel78