Entering information in TurboTax for excess ROTH IRA contribution in 2020

[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.

[DanaB27]

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

@xxraltz

[mojobush]

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

[MarilynG1]

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.

[rlsiegel78]

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?

[DaveF1006]

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 

[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

[dmertz]

@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.

[rlsiegel78]

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 

[DaveF1006]

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 

[dmertz]

[Edit]

Sorry, I missed that you did a regular distribution of $4,500 in 2022 to resolve the excess, not a return of contribution.  If you have no other money in Roth IRAs, your excess has been fully resolved.

Enter the Form 1099-R exactly as received; do not modify the amount in box 1.  When you tell TurboTax that you had no other money in Roth IRAs at the end of 2022, the excess has been resolved and TurboTax will prepare 2022 Form 5329 Part IV to show that your penalty for 2022 is zero.  (Form 5329 line 24 might still show $1,500, but you can eliminate that by indicating that you have no excess contributions next year when preparing your 2023 tax return.)

[DaveF1006]

I suggest reporting the 1099R distribution amount as $6000 in order to satisfy the return of contribution requirement so that Turbo Tax or IRS doesn't think you still have an excess withdrawal requirement of $1500. 

If the IRS questions you about the discrepancy of the reporting, just explain you requested a $6000 withdrawal of an excess contribution but because of the market downturn, you were only issued a distribution of $4500.  You were advised to report this by a Community Turbo Tax Expert. Keep a copy of this entire thread showing the tax advice you received.

As far as the $1500 loss, you would not declare that loss because your retirement account already is receiving tax-favored treatment. In fact the IRS mentions this in the following notice.

You do not need to amend your 2021 return.

@rlsiegel78