Excess Roth IRA contribution in 2019 and withdrawal partially before 2020 tax due day

[David0506]

I have an excess of 6000  Roth IRA in 2019, when I prepared the tax return in Feb 2020,   I found that so I withdrew that 6000 in Feb 2020.  That was the first time I need handle and didn't know I need to withdraw the earning too. This year I received the 1099R with the code J, so I called my financial institution and requested a recode, but they said they can't.  I do the calculation the total contribution and earning is $7391. The $6000 withdrawal on Feb 2020 may including the 2019 contribution:  $4870 and the earning $1129. That means I still have $ 1392 excess contribution for 2019 tax year. What do I need to do for my tax return? Prepare a substitution 1099R, instead of using the one financial institution sent to me, amended my 2019 tax, and pay the 6% of the excess 1392 and the earning of 1129, and then report the excess 1392 on 2020 tax and also withdrew the excess and the earning ASAP.  

Or just treat that as ordinary distribution, pay more tax? I know it's a little complicated.

[macuser_22]

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@David0506 wrote:

I have an excess of 6000  Roth IRA in 2019, when I prepared the tax return in Feb 2020,   I found that so I withdrew that 6000 in Feb 2020.  That was the first time I need handle and didn't know I need to withdraw the earning too. This year I received the 1099R with the code J, so I called my financial institution and requested a recode, but they said they can't.  I do the calculation the total contribution and earning is $7391. The $6000 withdrawal on Feb 2020 may including the 2019 contribution:  $4870 and the earning $1129. That means I still have $ 1392 excess contribution for 2019 tax year. What do I need to do for my tax return? Prepare a substitution 1099R, instead of using the one financial institution sent to me, amended my 2019 tax, and pay the 6% of the excess 1392 and the earning of 1129, and then report the excess 1392 on 2020 tax and also withdrew the excess and the earning ASAP.  

Or just treat that as ordinary distribution, pay more tax? I know it's a little complicated.

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Sorry, but if you did not have the excess AND earnings returned as a "return of contribution" that would result in a 1099-R with a code PJ, then  it is to late to do it now.    In this case the excess will result in a 6% penalty on  5329 form but the earnings stay in the account.     (NOTE:  many taxpayers intentionally get a normal distribution (code J) of the excess and pay the 6% if the earnings exceed the 6% penality - they are ahead to keep the earnings.)

6% of $6000 is a $360 penalty and your earnings were $1,391 - pay the $360 and keep the $1,391 - you are ahead and made a profitable error.

[David0506]

Thank you so much for the reply.

So, I thought too much about that, just amended my 2019 tax return and pay the excess 6% penalty. How to report the 1099R , ignored it?

[David0506]

is there any penalty if I am under 591/2

[macuser_22]

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@David0506 wrote:

is there any penalty if I am under 591/2

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No.  There is no tax or penalty on  the return  of your own contribution.

[David0506]

so how to deal with the 1099 r that my financial institution sent to me

[macuser_22 · Accepted solution]

You can always withdraw your own Roth contributions tax and penalty free.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

One of the followup questions will ask for your prior year** contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.

Note: **Prior year - any current year Roth contributions should be entered into the IRA contributions section. They will not show up in the prior years contributions but will be accounted for on the 8606 form that calculates the taxable amount.

[David0506]

Thank you for your reply, so I just need to amend the 2019 tax return and use form 5529 to pay my 6% penalty tax.

[macuser_22]

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@David0506 wrote:

Thank you for your reply, so I just need to amend the 2019 tax return and use form 5529 to pay my 6% penalty tax.

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Yes and enter the 1099-R on the 2020 tax rerturn.

[David0506]

@macuser_22 Thank you so much for your advice. I imported my 1099 r and go step by step to answer the questions, it works! No penalty, and other taxes for that distribution.

But when I amended my  2019 tax and put all information, because I withdrew the excess 6000 Roth IRA contribution by April 15, 2020, there was no difference and I checked forms, no 5329 show up. Do I still need to amend and report the 6% tax?

[macuser_22]

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@David0506 wrote:

@macuser_22 Thank you so much for your advice. I imported my 1099 r and go step by step to answer the questions, it works! No penalty, and other taxes for that distribution.

But when I amended my  2019 tax and put all information, because I withdrew the excess 6000 Roth IRA contribution by April 15, 2020, there was no difference and I checked forms, no 5329 show up. Do I still need to amend and report the 6% tax?

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No yiu do not do 2019 that way.  It is NOT a 2019 contribution, it is a 2018 excess that carried to 2019, and you do NOT say to apply it to 2020, because only a NEW 2019 contribution could do that.    You indicate that it was not removed in 2019.

[David0506]

No, it is the 2019 excess Roth contribution, not the 2018 carry-over. 

[David0506]

@macuser_22 That is new 2019 contribution, not from 2018 carry over. I just follow the turbox tax step to put the information. No panelty, no 5329 form.

[macuser_22]

I posted that to the wrong thread.

[David0506]

@macuser_22 No problem!  I will still amend my 2019 tax and report that as my 2019 excess contribution and pay the 6% penalty since my earnings for the excess were not distributed at the same time to be considered timely.