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.
First the earnings are NOT "other income" remove that.
No 5329 is necessary.
You will receive a 2021 1099-R next year to report in on an amended 2020 tax return.
*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 14 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.
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