How is an excess contribution(s) to Roth IRA accounts handled on Turbo Tax?

[schlagamuffin]

My wife and I (married, filing jointly) contributed to our individual Roth IRA and those contributions ended up being not allowed per our gross annual income.  We have asked the handler of our account to take out the excess distributions.  How is this treated on Turbo Tax?  Do we show $0 contributed but then account for the taking out of the excess contributions as wages/income (haven't received a 1099-R)?

[CherylW]

If the excess contribution relates to the current tax year (2016), you don't show that you removed the contribution per se. In the IRA contribution area, you would simply back out the contribution altogether so the excess penalty goes away. You would only leave the contribution there if you failed to remove it.

Next year, you will receive a 1099-R that relates to your 2016 return. On this 1099-R, any earnings on this withdrawn contribution will be reported as taxable. I would recommend that you "fake it" this year, so you don't owe any interest/ penalties due to amending your return months down the road.

Under Federal Taxes- Wages and Income- Retirement Plans and Social Security- 1099-R:

• Find the custodian's address and EIN (should be easy for large institutions)
• Box 1- the total amount that came out, including the earnings
• Box 2a- the taxable earnings
• Box-7 Enter Code P (and Code J if under 59 1/2).
• After entering the 1099-R, you will be asked for the year of the tax form. You would select 2017. (Code P means taxable in the year before the form.)

If you made the correction in 2016 itself, you should already have a 1099-R, but it would have Code 8 instead of P.

Assuming you made the correction in 2017, you'll get a 1099-R with Code P on it next year. Code P will mean taxable in 2016. And you will already have accounted for that. 

[wxbeaz]

@CherylW 

Are you suggesting by "faking it" to skip the entry of the excess roth contribution in tubotax? Is this the right way to do this?

The original post is in 2019, you reference 2016, is this just a copy of a similar question from 2016?

Thanks

[dmertz]

You must enter the Roth IRA contribution(s), then, when TurboTax indicates that there is an excess contribution, indicate the amount of excess contribution returned (not the gain/loss-adjusted amount distributed).  This will cause TurboTax to prompt for an explanation statement describing the return of contribution. 

If there was any gain distributed with the returned contribution you must also enter the made-up 2019 Form 1099-R described by CherylW (in that case a 2017 Form 1099-R for a 2016 contribution returned in 2017), except for one error in that answer:  Both codes P and J must be used and, if over age 59½ at the time of the return of excess contribution, claim an Other reason exception to the early-distribution penalty on the taxable earnings entered in box 2a.