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ziginnj
Level 2

Final steps in Roth Ira Excess Contributions in TurboTax

Hello. Thank you in advance.  I tried to find this answer with no luck.

We have a Roth IRA and did not know about the income limitations.  We overfunded by $300 in 2021 and by $20 in 2021.

We reached out to our broker and they will refund the excess.

I saw where in TurboTax to indicate in 2020 that I am receiving the money back.  I entered that $300 was returned to me.   I have not filed yet so I am clear there.

My question is they said my Excess Earnings on my Contributions for 2020 was $146.00 and for 2021 was $0.59.   I am not quite sure what I should do with these numbers.  Does the 2020 number go anywhere on my tax return?

Can anyone help? THANK YOU!!!!
1 Best answer

Accepted Solutions
macuser_22
Level 15

Final steps in Roth Ira Excess Contributions in TurboTax


@ziginnj wrote:
Hello. Thank you in advance.  I tried to find this answer with no luck.

We have a Roth IRA and did not know about the income limitations.  We overfunded by $300 in 2021 and by $20 in 2021.

We reached out to our broker and they will refund the excess.

I saw where in TurboTax to indicate in 2020 that I am receiving the money back.  I entered that $300 was returned to me.   I have not filed yet so I am clear there.

My question is they said my Excess Earnings on my Contributions for 2020 was $146.00 and for 2021 was $0.59.   I am not quite sure what I should do with these numbers.  Does the 2020 number go anywhere on my tax return?

Can anyone help? THANK YOU!!!!

@ziginnj -

 

To properly report this: if you requested a "return of contribution plus earnings" as it appears you did, and the 2020 excess was removed before April 15, 2021, then you shoukd receive two 1099-R forms in January 2022.

 

One should have the $300 2020 excess on box 1 and the $146 earning in box 2a with a box 7 code PJ.   That will require that you amend 2020 to report the taxable earnings in the year that the contribution was for, not returned.

 

The other 1099-R should have a box 1 amount of $20 and box 2a of $.59 (rounds up to $1) and a box 7 code 8J that is reported on your 2021 tax return.  

 

Only the $146 earnings is taxable in 2020 and only the $1 is taxable in 2021.  

 

A returned IRA contribution or IRA distribution can NEVER be reported as "other income".

 

(Since you know the amount of the 2020 returned excess and the earnings, there is a way to create a "dummy" 1099-R to report it now on your 2020 tax return (if you have not already filed) that will avoid having to amend after receiving the 1099-R. in 2022   Post back if you would like the procedure.)

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

View solution in original post

15 Replies
ThomasM125
Employee Tax Expert

Final steps in Roth Ira Excess Contributions in TurboTax

If you receive a form 1099-R reporting the excess earnings in box 7, code 8 or P, you can enter that form to report the earnings. You can also create a substitute form, but you will need to enter a federal ID number for the form 1099-R if you want to e-file your tax return.

 

 

[Edited 2/5/2021 8:18 PST ]

@ziginnj

[Edited 2/9/2021 11:57 PST ]

@ziginnj

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ziginnj
Level 2

Final steps in Roth Ira Excess Contributions in TurboTax

Thank you Thomas. 

I looked everywhere for this answer so thank you. 

ziginnj
Level 2

Final steps in Roth Ira Excess Contributions in TurboTax

Thomas~ just confirming. I do not need to do a substitute 1099~R? Turbo tax was prompting me to that when I tried to file and they did their final check. 

ziginnj
Level 2

Final steps in Roth Ira Excess Contributions in TurboTax

Last question. Promise. Thank you. Appreciate you. 

on the screen that says enter your Roth IRA contributions for 2020, do I even need to fill that out as the money was returned?

macuser_22
Level 15

Final steps in Roth Ira Excess Contributions in TurboTax


@ThomasM125 wrote:

You need to enter the excess earnings in TurboTax by using the following menu tabs, so that you pay taxes on the income that was from the excess contributions:

  1. Federal
  2. Income and expenses
  3. Less common income
  4. Miscellaneous income
  5. Other reportable income

Enter IRA Ex. Inc. for the description and then the amount.


@ThomasM125 

In 10 or more years answering IRA questions I have never heard of that.   As far as I know a return of contribution can only be reported with a 1099-R form with a code 8J or PJ in box 7  (or possible just J if it was returned as an ordinary distribution and not a "return of contribution") , that is issued by the financial in institution that returned the contribution and any taxable earnings would be reported in box 2a.

 

I have reviewed the 1099-R rules and the IRS Publication 590A an can find no authority in the rules or tax law that allows the returned contribution or earnings to be reported as "Miscellaneous income."    

 

Please cite the IRS authority or tax law that allow this.  I am very curious what the reference is that allows this.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
ThomasM125
Employee Tax Expert

Final steps in Roth Ira Excess Contributions in TurboTax

@macuser_22 You are correct, please see my edited response. I was assuming the earnings were not reported on a form 1099-R. It is commonplace to report income not reported to you as Other Income, especially when the amounts are minimal as is the case here.

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**Mark the post that answers your question by clicking on "Mark as Best Answer"
macuser_22
Level 15

Final steps in Roth Ira Excess Contributions in TurboTax


@ziginnj wrote:
Hello. Thank you in advance.  I tried to find this answer with no luck.

We have a Roth IRA and did not know about the income limitations.  We overfunded by $300 in 2021 and by $20 in 2021.

We reached out to our broker and they will refund the excess.

I saw where in TurboTax to indicate in 2020 that I am receiving the money back.  I entered that $300 was returned to me.   I have not filed yet so I am clear there.

My question is they said my Excess Earnings on my Contributions for 2020 was $146.00 and for 2021 was $0.59.   I am not quite sure what I should do with these numbers.  Does the 2020 number go anywhere on my tax return?

Can anyone help? THANK YOU!!!!

@ziginnj -

 

To properly report this: if you requested a "return of contribution plus earnings" as it appears you did, and the 2020 excess was removed before April 15, 2021, then you shoukd receive two 1099-R forms in January 2022.

 

One should have the $300 2020 excess on box 1 and the $146 earning in box 2a with a box 7 code PJ.   That will require that you amend 2020 to report the taxable earnings in the year that the contribution was for, not returned.

 

The other 1099-R should have a box 1 amount of $20 and box 2a of $.59 (rounds up to $1) and a box 7 code 8J that is reported on your 2021 tax return.  

 

Only the $146 earnings is taxable in 2020 and only the $1 is taxable in 2021.  

 

A returned IRA contribution or IRA distribution can NEVER be reported as "other income".

 

(Since you know the amount of the 2020 returned excess and the earnings, there is a way to create a "dummy" 1099-R to report it now on your 2020 tax return (if you have not already filed) that will avoid having to amend after receiving the 1099-R. in 2022   Post back if you would like the procedure.)

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
ziginnj
Level 2

Final steps in Roth Ira Excess Contributions in TurboTax

first and most important, THANK YOU. I can’t express my appreciation. 

I did try but was clueless what numbers went into each box as I do not have the 1099. 

can you send me the procedure? 

 

macuser_22
Level 15

Final steps in Roth Ira Excess Contributions in TurboTax


@ziginnj wrote:

first and most important, THANK YOU. I can’t express my appreciation. 

I did try but was clueless what numbers went into each box as I do not have the 1099. 

can you send me the procedure? 

 


*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2020 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 but as a return of contribution with a code "JP" in box 7 - then:

You can just report it now and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 12 State withholding. Then you must also 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 JP will not do anything in 2021 but the withholding will be applied to 2021.

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 2019 "

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

On the "Which year" screen say that this is a 2021 1099-R. - That makes it taxable in 2020 and not 2019

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 2021 1099-R on your 2019 tax return to avoid having to amend in 2021.

The box 2a earnings will be taxable income reported on line 4b 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 Schedule 4 form.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
macuser_22
Level 15

Final steps in Roth Ira Excess Contributions in TurboTax


@ThomasM125 wrote:

@macuser_22 You are correct, please see my edited response. I was assuming the earnings were not reported on a form 1099-R. It is commonplace to report income not reported to you as Other Income, especially when the amounts are minimal as is the case here.


Not if it is a distribution from an IRA.  By law any IRA distribution can only be reported on a 1099-R.  The IRS gets a copy of the 1099-R from the financial institution and expect to see it on the IRA owners tax return.  Any IRA distribution of $1 of more must be reported on the 1040 line 4 with a 1099-R.   There is no other way to report it.

 

See 1099-R instructions and IRS PUB 590B for reporting reqiuirments.

https://www.irs.gov/instructions/i1099r

https://www.irs.gov/publications/p590b

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
ziginnj
Level 2

Final steps in Roth Ira Excess Contributions in TurboTax

Thank you thank you thank you. All set. 
I am going to wait for the official statement to confirm my amounts and then send. . Very much appreciate your help. You are very good what what you do. 

ziginnj
Level 2

Final steps in Roth Ira Excess Contributions in TurboTax

@macuser_22 @Sorry to bother you. 
Am I allowed to wait until next year to fix this in terms of filing my 1099-R?  I went to file and it’s a paper form I need to mail which I understand. Just wondering. I’m leaning toward fixing it now if I had a choice. 

macuser_22
Level 15

Final steps in Roth Ira Excess Contributions in TurboTax

You do not need to do anything  until you receive the 1099-R's forms in 2022.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
KOTAXTIME
Returning Member

Final steps in Roth Ira Excess Contributions in TurboTax

I contributed an excess amount to a Roth IRA in 2020. I requested the excess contribution and earnings back from the financial institution. I reported the earnings on the "other reportable income" section on TurboTax. The financial institution also told me complete a 5329 form. I have searched the boards for how to complete the form, but did not have any success. A 5329 form was mentioned in a post, but was never discussed further. Was the individual I spoke with correct in that I need to complete the 5329 form. If so, can anyone lend a helpful word on how to correctly complete the form? For Line 20 - 2020 distributions from your Roth IRA, is that how much I contributed or earnings or a combination?

Thank you in advance.

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