I've read through many threads on handling excess IRA contributions, but couldn't find one that quite matches my scenario. Here's what I did:
1) Made a $6000 traditional IRA contribution for 2020 in April 2020, then converted it to Roth a couple of weeks later
2) Forgetting about #1, I did the same thing again in December 2020 (contribution & conversion)
3) In February 2021 I realized my mistake and filed a "Return of Excess Contribution" form with my bank and had $6000.01 (the contribution + earnings) returned to my checking account.
So the 2019 1099-R I got from my bank shows $12000 in distributions from my traditional IRA. I assume next year I'll get a 2020 1099-R that covers the return of excess, but I don't want to wait and amend my taxes then.
Based on other threads I think I need to do the following:
a) Enter a manual 1099-R with $6000.01 in box 1, $0.01 in box 2a, and codes J & P in box 7. Fill out Form 4852, and select year 2021.
b) In "Deductions & Credits" -> "Retirement and Investments" -> "Traditional and Roth IRA Contributions" I need to indicate that I made an excess contribution of $6000 but this contribution was withdrawn before the tax deadline.
I did (a), but not sure how to do (b). Is this an excess traditional IRA contribution, or Roth IRA contribution? I think the answer is traditional, since I didn't technically make a Roth contribution (rather it was a conversion). But for traditional IRAs the interview only asks about excess contributions in 2019 or earlier, while for Roth IRAs it asks about 2020 or earlier. If I enter it as an excess Roth IRA contribution then it seems I'm paying a large penalty, even though I listed the $6000 as withdrawn before the due date. So I suspect I'm not doing it right.
How to handle this?
For b), indicate that you contributed $12,000 to a traditional IRA, then indicate that you had $6,000 of that returned. TurboTax will prompt you to prepare and explanation statement where you'll describe everything as you did here.
Thanks dmertz, that seems to work. I guess I had failed to include the excess contribution in (b) before, so it was never prompting me to include any amount returned before the tax due date. Once I listed the full $12K it said I had a penalty, and allowed me to note the returned contribution.