I need help cleaning up an excessive Roth IRA contribution from 2018/2019. Evidently, I did not enter the 1099-Rs showing the removal, still paying the penalty. Help!

[dpreas2017]

In 2018, I removed excess Roth IRA contribution and received a 1099-R coded J.  In 2019, I removed the remaining excess contribution and received a 1099-R coded PJ.  Looking back at my 2018 & 2019 returns, I do not see that I entered the 1099-Rs into TurboTax.  

I caught this due to TT pulling the excess forward and charging a 6% penalty ($55), I guess I missed the penalty in 2020 and 2021.  What's the most efficient (easy) way to deal with this?  Thanks!

[DanaB27 · Accepted solution]

The 2018 Form 1099-R with code J and the 2019 Form 1099-R with codes P and J belonged both on your 2018 tax return. Only the earnings that are shown in box 2a of the 2019 Form 1099-R with codes P and J are taxable on your 2018 return. Since you removed the excess plus earnings before the due date you should have entered during the IRA contribution interview on the penalty screen that you removed the excess contribution by the due date.

In the following year (2019), you should have answered "no" on the "Do you have any Excess Roth Contributions" screen and deleted any amount carried over. This will delete the 6% penalty on Form 5329 on your 2019 return. 

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Enter Excess Contributions" screen delete the excess amount that was carried over.

You will have to repeat the steps for 2020,  2021, and 2022 to remove the 6% penalty.

Please see How do I amend my federal tax return for a prior year?

@dpreas2017 

[Edited 3/22/2023 | 4:58 am PST]

[dpreas2017]

@DanaB27 Thank you for the response.  In reviewing my 2018 tax return, it appears I submitted a substitute 1099-R via Form 4852, noting the return of excessive contributions in 2018 that will be reported via a 2019 1099-R.  Thus, I should be good with the IRS from a 1099-R reporting perspective.

To clarify your response, I fix my 2022 return via the "Do you have any Excess Roth Contributions" screen, then I amend 2020 and 2021 to remove the penalty by the same process.  No action is needed with my 2019 return.   Is this correct? 

And thank you again for your answer.

[DaveF1006]

Yes, you do not need to do anything additional with your 2019 return since you reported the 1099-R in the return.

@dpreas2017 

[dpreas2017]

@DaveF1006 Thanks for your response.  I hit a TT snag when completing my 2021 amended return. I removed the excess Roth IRA contribution (which showed a refund for the penalty), then on the screen entering the explanation, I accidently hit enter and moved forward.  Unable to get back, I canceled the admend.  When re-entering the admend, the excess contribution was already set to 0 and the refund shown by TT was also $0.  Somehow TT lost the penalty to provide the refund.  Getting all the way out of TT didn't help, any suggestions?  Not the end of the world if the refund is lost, I suppose submitting the amended return to the IRS is still important.

Also, I submitted a 2021 amended return in February due to missing 1099-B.  It's still pending with the IRS.  Should I wait until it is processed by the IRS prior to submitting a new 2021 amended return?  Can I go ahead and submit 2020 amend?  OR should these go in "together".  I really appreciate the support you folks provide.

[DanaB27]

Yes, it would be best to wait to send you the amended 2021 return until the first 2021 amended return has been processed. But you can go ahead and submit the 2020 amended return.

To verify, did you have the 6% penalty calculated on your 2019 return? If yes then you will have to amend the 2019 return as well.

In regards, to the lost started 2021 amended return you might have to contact TurboTax support. Please see  What is the TurboTax phone number?

Another option is to download Form 1040-X and fill it out manually. The change on Form 5329 and Schedule 2 line 8 will affect line 10 on Form 1040-X. And then you can fill out the rest to calculate your refund.

@dpreas2017 

[dpreas2017]

@DanaB27 Thank you so much for responding!  I spent the afternoon reconciling my Roth IRA statements (2018/2019) against the 1099-Rs reported on my 2017/2018 returns.  Based on this, I removed more excess contribution than was reported via 1099-R, by the exact amount shown in a 2018 1099-R I was able to download from my brokerage.  This is also the amount carried forward as a penalty (over the past 4 yrs).  I'm fairly certain the I missed entering a 1099-R dated in 2018.

What is the easiest way to fix this?  Thanks again.

[DanaB27]

To confirm, you had removed the excess contribution for 2018 but incorrectly showed the 6% penalty on your 2018 return.

Unfortunately, the deadline to claim a refund on the 2018 tax return has passed.

 “Generally, for a credit or refund, you must file Form 1040-X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later.” (IRS)

@dpreas2017

[dpreas2017]

@DanaB27 Correct - I actually removed excess contributions in 2017 and 2018 and incorrectly paid 6% penalties in 2017 and 2018.  Based on your prior guidance and IRS rule regarding 1040-X, inadvertent penalties paid in 2017 and 2018 will be lost, and I will amend 2019, 2020, and 2021 by removing the excess contribution in the TurboTax Roth Ira interview. 

I will NOT enter the 2018 1099-R into the 2019 1040-X to support the removal of excess penalty in 2019, correct?

[DanaB27]

Yes, you won’t enter the 2018 Form 1099-R on your 2019 return. All you need to remove the excess penalty on your 2019 return is to delete the excess:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Enter Excess Contributions" screen delete the excess amount that was carried over.

In the explanation of why you are amending the return you can state that you had removed the excess contribution in prior years by the due date but had an incorrect carryover. Therefore, you are removing the incorrect excess contribution entry from Form 5329 line 18.

@dpreas2017 

[dpreas2017]

@DanaB27 Follow-up question.  I completed my 2019 amended return using TT Desktop version, which prepared the 1040-X and attached the rest of my 2019 return including 1040, schedules, itemized deductions, gain/loss statements, etc. (minus Form 5329).  I read online that I only need to file forms that have changed along with 1040-X.  Thus, I am confused why TT prepared an amended return that includes all forms from the original return (minus 5329).  Should I send the IRS what TT prepared for the amended return, or should I remove unchanged forms?

Also, I read that I will sign the 1040-X only and NOT the 1040 (in the amended return), even though there's a 1040 signature line. Correct?   Thank you again for your help. 

[DanaB27]

Yes, you will only sign Form 1040-X.

Yes, you only include copies of any forms and/or schedules that changed or weren't included with your original return. You can remove unchanged forms.

@dpreas2017