How to Report an Excess Roth Contribution from 2 Yrs Ago that Was Withdrawn in Current Tax Year?

[orbtu]

Hi.  I over contributed to my Roth IRA in 2017, and I had just recently discovered this mistake and withdrew the contribution ($5,500) in Dec 2019.  I received 1099-R with code J.  How do I report this in TurboTax Premier?

I had also mistakenly made an excess Roth contribution (of $6,000) for tax year 2019, which I have recharacterized in Dec 2019.  This is code N on the 1099-R.

After entering information for the 2019 and 2017 excess contributions, TurboTax is now showing a $500 "Traditional and Roth IRA Contributions" in the "Retirement and Investments" section on the following screen:

- Federal Taxes > Deductions & Credits

But I did not make a $500 IRA contribution in 2019.  I think TurboTax is subtracting the 2017 excess contribution withdrawn ($5,500) from the 2019 excess contribution recharacterized ($6,000), causing this erroneous $500 IRA contribution amount.

How should my situation be reported in TurboTax so that this erroneous $500 doesn't show up?

This is how I've entered my info in TurboTax for the following interview questions (which I noticed was asked twice in the software; once in the "Wages & Income" section and again in the "Deductions & Credits" section). 

- Whether I withdrew from Roth IRA before 2019. (I answered 'Yes' due to the 2017 excess contribution)

- Enter Prior Year Roth IRA Contributions (I entered $11,500, which is the sum of the $5,500 contributed in 2017 and 2018 each + $6,000 contributed in 2019)

- Enter excess roth IRA contributions from prior years. (I entered $5,500 from 2017)

[dmertz · Accepted solution]

You report this like any regular Roth IRA distribution (which is what it is; after the due date of the tax return for the year the excess contribution was made, the excess is resolved by taking a regular distribution of the amount of the excess).  Enter the Form 1099-R exactly as received under Wages & Income (or Personal Income) -> Retirement Plans and Social Security -> IRA, 401(k), Pension Plan Withdrawals (1099-R).  When asked what you did with the money, indicate that you "did something else with it," in other words, you did not roll it over to another Roth IRA.  Click the Continue button on the Your 1099-R Entries page and answer the general questions  about your Roth IRAs to indicate the amount of your contributions made for years prior to 2019 and the amount of excess contributions that were in your Roth IRAs at the end of 2018, both carried into 2019.  TurboTax will prepare Form 8606 Part III to show that the distribution is not subject to tax or penalty and will prepare Form 5329 Part IV to show that the excess has been resolved the the regular distribution.

Also make sure that you have filed Form 5329 Part IV and have paid the excess-contribution penalty for each of the prior years that the excess was present (2017 and 2018).

Nothing about the excess contribution gets entered as a new contribution.  TurboTax should be showing that you made a $6,000 contribution for 2019.  With regard to your $6,000 contribution, make sure that you have entered the $6,000 Roth IRA contribution and have indicated that you switched/recharacterized $6,000 to be a traditional IRA contribution instead.

Regarding how you have answered TurboTax's questions:

"- Whether I withdrew from Roth IRA before 2019. (I answered 'Yes' due to the 2017 excess contribution)"

Unless you made some code J distribution in some year prior to 2019, the correct answer is 'No.'  Your distribution to correct the excess contribution for 2017 was in 2019, not before 2019.

- Enter Prior Year Roth IRA Contributions (I entered $11,500, which is the sum of the $5,500 contributed in 2017 and 2018 each + $6,000 contributed in 2019)

If you made no Roth IRA contributions for years prior to 2017, the correct answer is $11,000 ($5,500 for 2017 plus $5,500 for 2018).

- Enter excess roth IRA contributions from prior years. (I entered $5,500 from 2017)

If your contribution for 2018 was not an excess contribution $5,500 is correct.  Presumably your code J Form 1099-R shows a $5,500 distribution.