Excess Roth IRA contribution made in 2017 and withdrawn before filing in 2018. When and how do I pay taxes on any earnings?

[starbase1999]

Oct-17 - Contribute more than our income  into Roth IRA
Jan-18 - Withdraw excess and reinvest as 2018 contribution.
Jan-18 - Financial reports principal and earnings withdrawn.

I've seen TurboTax say to report taxes in 2019 for tax year 2018 after receiving 1099-R.
Also, I've seen TurboTax say to enter a mock 1099-R for tax year 2017.

When and how do I pay taxes on the earnings?

[macuser_22]

Do you know what the earnings are that will be reported in box 2a on a 2018 1099-R?

[goldfrost]

0.20

[macuser_22]

@goldfrost - You can ignore that since anything less than 50 cents rounds to zero.

[macuser_22 · Accepted solution]

*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2017 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal Roth distribution - then:

You can just report it now and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/of box 12 State withholding. Then you must enter the 2018 1099-R in to the 2018 tax return since the withholding is reported in the year that the tax was withheld. The 2018 code P will not do anything in 2018 but the withholding will be applied to 2018.

You would enter the 1099-R with the total distribution in box 1 (the contribution plus the earnings),

The earnings in box 2a,

Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2016 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2018 1099-R.

After the 1099-R summary screen press continue.

If you are over 59 1/2 then on the "Lets see if we can lower your tax bill" enter the box 2a amount in the "Another Reason" box to eliminate the 10% early withdrawal penalty on the earnings.

Enter the explanation for the excess contribution and that you are reporting a 2018 1099-R on your 2017 tax return to avoid having to amend in 2018.

The box 2a earnings will be taxable income reported on line 15b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form that will be reported on line 59 on the 1040 form.

[starbase1999]

Thank you for the reply.

Yes, I'm over 59 1/12.  The excess will be removed after we get the W-2 which means we will withdraw the excess in February before filing our 2017 return.  It will be reported as a return of contribution which will then be reinvested as a 2018 tax year contribution.

So you're saying I should create a mocked up 1099-R from the information you provided?  That's okay since I wouldn't be receiving the 2018 1099-R possibly until 2019.

How do I get to the 1099-R entry screen?  What section is it part of?
The 1099-R will then populate the 1040 line 15b?

Basically I have two choices,
I can do it now as you say and ignore the 2018 1099-R when I get it or
I can wait until tax year 2018 and report the 2018 1099-R I receive then with it?

[starbase1999]

The financial said that both the principal and earnings will appear on my transaction history when the transaction to withdraw is completed.

[macuser_22]

This has nothing to do with a W-2.

No, I am not saying that you "should".  You asked how to do it if you wanted to.

Yes, you have 2 choices;
1) As you said, report it now with a "mock" 2018 1099-R and ignore the real 1099-R when it comes a year form now, or
2) AMEND your 2017 tax return next year after receiver the 2018 1099-R.  It does not go on your 2018 tax return since the earnings must be reported in the tax year that the contribution was made - 2017.  (It would also be reported on your 2018 tax return *only* if the IRA custodian withheld any federal tax on the earnings which would be very unusual).

The 1099-R box 1 amount (total distribution including earnings) will be on 1040 line 15a, 1099-R box 2 amount (earnings) on line 15b.

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.]

[starbase1999]

I’m waiting for the W-2 to see how much excess I had since we don’t know exactly what Federal Wages box 1 will have.
Both my wife and I contributed $5000 in 2017. Th earnings, we think are $9865 so TurboTax said that I was exceed by $135. So does that mean that the 1099-R is for me?

[macuser_22]

After you enter all of your income for 2017 then enter your Roth IRA contributions in the IRA contribution section and TurboTax will tell you the excess.

It is not combined, each spouses IRA contributions are totally separate.

[starbase1999]

TurboTax did tell me the excess after I entered the predicted household income. It said that I was the excess. So since I exceed the combined household income, the 1099-R would be mine. When you said, choose the right 1099-R form, in this case would it the the standard one?

[macuser_22]

Yes, and choose the correct spouse - you.

[starbase1999]

Thank you  macuser_22   You’ve been a great help. You brought clarity where everything else I read was ambiguous.

[macuser_22]

Glad to help.   Just one other minor thing that can be frustrating.

You might need to adjust the amount of excess upward or you could end up in a loop when  trying to enter all of this.

The amount of excess is biased on the contribution amount and your MAGI.  After entering all of your income the MAGI is known, and the excess based on that,  but when you enter the 1099-R and the earnings that get entered on line 15B that *adds* to the MAGI so the excess then increases (by a small amount), etc, etc.

[starbase1999]

I figure if TurboTax says I exceeded by $135, I will probably withdraw $150. After I enter all data hypothetically, including the 1099-R, TurboTax should say if I’m exceeding any longer.  I will play around with TurboTax tomorrow to be sure what amount works before actually doing the withdrawal.