Solved: I made an excess Roth IRA contribution that I pulled out the immediate subsequent days before it gained/lost any interest or value. Do I need to report this as an excess?
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cfree5119
New Member

I made an excess Roth IRA contribution that I pulled out the immediate subsequent days before it gained/lost any interest or value. Do I need to report this as an excess?

I made an excess Roth IRA contribution that I pulled out the immediate subsequent days before it gained/lost any interest or value. Do I need to report this as an excess contribution?
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Accepted Solutions
dmertz
Level 15

I made an excess Roth IRA contribution that I pulled out the immediate subsequent days before it gained/lost any interest or value. Do I need to report this as an excess?

Provided that you explicitly requested a return of contribution, the 2017 Form 1099-R will have code 8 and J in box 7 and, because there was no gain or loss, will have a zero in box 2a.  Because the IRS will receive a 2016 Form 5498 reporting the contribution but will not receive the 2017 Form 1099-R until next year, your tax return should include an explanation of the contribution and its return.

Unfortunately, 2016 TurboTax doesn't seem to provide any way to include such an explanation under these circumstances.  You can enter the original contribution, indicate in the follow-up that you've had that contribution returned, but TurboTax will not prompt you to enter an explanation to be included with your tax return.  Even if you make the entries, they will have no effect on the tax return prepared by TurboTax.  TurboTax will simply record your entries for record-keeping.  If you like, you can print and mail your 2016 tax return after adding a manually prepared explanation statement.  You'll also report the distribution on your 2017 tax return with explanation (2017 TurboTax will prompt for the explanation upon entering the From 1099-R), but it, won't be taxable.  It might be sufficient to include explanation only with your 2017 tax return, but there's a chance that the IRS will question the contribution reported on the 2016 Form 5498 and not later correlate it with the 2017 Form 1099-R; the IRS tends to look only at a single-year's forms in determining tax and penalty liabilities.

If you instead requested a regular distribution, the 2017 Form 1099-R will have code J, T or Q in box 7.  A distribution made in this way is not recorded as correcting the excess under these circumstances.  However, since there is no gain or loss, it does meet the requirements of a return of contribution, so you would have to convince the IRS that this distribution qualifies to correct the excess such that there is no 6% penalty due with your 2016 tax return.  So in addition to the explanation statement with your 2016 tax return, you 2017 tax return would report the distribution with by using a substitute Form 1099-R in place of the code J, T or Q Form 1099-R.

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3 Replies
dmertz
Level 15

I made an excess Roth IRA contribution that I pulled out the immediate subsequent days before it gained/lost any interest or value. Do I need to report this as an excess?

What are the codes in box 7 of the Form 1099-R?
*For* what year was the contribution made?
*In* what year was the contribution made?
cfree5119
New Member

I made an excess Roth IRA contribution that I pulled out the immediate subsequent days before it gained/lost any interest or value. Do I need to report this as an excess?

The excess contribution was made for tax year 2016, April 12th, 2017. I subsequently extended my taxes to be filed in October. I made the excess removal withdrawal April 21st 2017 with zero gains or losses from April 12th as the Roth IRA was being held 100% in cash at the time.
dmertz
Level 15

I made an excess Roth IRA contribution that I pulled out the immediate subsequent days before it gained/lost any interest or value. Do I need to report this as an excess?

Provided that you explicitly requested a return of contribution, the 2017 Form 1099-R will have code 8 and J in box 7 and, because there was no gain or loss, will have a zero in box 2a.  Because the IRS will receive a 2016 Form 5498 reporting the contribution but will not receive the 2017 Form 1099-R until next year, your tax return should include an explanation of the contribution and its return.

Unfortunately, 2016 TurboTax doesn't seem to provide any way to include such an explanation under these circumstances.  You can enter the original contribution, indicate in the follow-up that you've had that contribution returned, but TurboTax will not prompt you to enter an explanation to be included with your tax return.  Even if you make the entries, they will have no effect on the tax return prepared by TurboTax.  TurboTax will simply record your entries for record-keeping.  If you like, you can print and mail your 2016 tax return after adding a manually prepared explanation statement.  You'll also report the distribution on your 2017 tax return with explanation (2017 TurboTax will prompt for the explanation upon entering the From 1099-R), but it, won't be taxable.  It might be sufficient to include explanation only with your 2017 tax return, but there's a chance that the IRS will question the contribution reported on the 2016 Form 5498 and not later correlate it with the 2017 Form 1099-R; the IRS tends to look only at a single-year's forms in determining tax and penalty liabilities.

If you instead requested a regular distribution, the 2017 Form 1099-R will have code J, T or Q in box 7.  A distribution made in this way is not recorded as correcting the excess under these circumstances.  However, since there is no gain or loss, it does meet the requirements of a return of contribution, so you would have to convince the IRS that this distribution qualifies to correct the excess such that there is no 6% penalty due with your 2016 tax return.  So in addition to the explanation statement with your 2016 tax return, you 2017 tax return would report the distribution with by using a substitute Form 1099-R in place of the code J, T or Q Form 1099-R.

View solution in original post

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