I over contributed to Roth IRA. I'm applying for excess contribution with my plan administrator (Fidelity). Should I ask them to withhold taxes or have Turbotax do it?

[sankalp-money]

I over contributed to Roth IRA. I realized this when I noticed my AGI while filing my returns. I have applied for extension and bought some time. Now I am filling up the excess contribution form from my Roth IRA plan administrator (Fidelity). It gives me these options for paying taxes on earnings-

1. Have them withhold taxes at a certain percentage specified by me,

2. Ask them not to withhold anything

Which one of them should I select? 

My understanding is that it shouldn't matter because in either case, those details would be there on my 1099-R. Whether I paid taxes on my Roth earnings or not, Turbo tax would be able to read it from my 1099-R and take that into account while calculating the final refund/debt. 

Can you confirm if that's correct?

Thanks!

[macuser_22]

Is this a contribution made in 2018 or in 2019 for 2018?

[sankalp-money]

This was a contribution made in 2018 towards 2018.

[macuser_22]

Then having any tax withheld would be senseless.      Earnings are taxable in the year that the contribution was made (2018), but tax withholding can only be applied to the tax year that the withholding occurred in (2019).   In other words, 2019 withholding cannot be applied retroactively to  2018 to pay any 2018 tax due and can only reduce your 2019 tax liability.

You probably will not get the 1099-R until Jan 2020 which will require amending 2018 unless you know the exact amounts of returned contribution and earnings - then you can report it now with a dummy 1099-R if you have all of the payers information that will be on the 1099-R.   Then you will not need to amend.   (Some payers will issue a 1099-R early for this - ask them).

[macuser_22]

*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2018 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 - 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 12 State withholding. Then you must also enter the 2019 1099-R into the 2019 tax return since the withholding is reported in the year that the tax was withheld. The 2019 code P will not do anything in 2019 but the withholding will be applied to 2019.

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 2017 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2019 1099-R.

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 2019 1099-R on your 2018 tax return to avoid having to amend in 2019.

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.

[LWHIGHTOWER]

My wife overcontributed to her Roth at work in 2018. In 2019 we received a check from the plan administrator along with a remittance advice. Should there also have been a 1099R? Do we need to record this as income, and if so, how?