If I contributed the Roth IRA limit of $6,000 in 2019, but my incomes from my W-2 may indicate I may have been ineligible, how should I file my 2020 return?

[DanaB27]

If you had excess contributions to a Roth IRA and want to avoid the excess contributions tax then you need to:

• withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• withdraw any income earned on the excess contribution.

Please contact your financial institution on how to withdraw the excess contribution plus earnings.

After you have withdrawn the complete contribution with all earnings you do not have to include the contribution on your tax return in the Deduction and Credit section.

You will get a 1099-R in 2021 for the withdrawal of the excess contribution which has to be included in your 2019 tax return. You have two options, you can wait and amend you 2019 tax return when you get the 1099-R or you can report it now by using these instructions: 

Solution Reporting of Withdrawal of an excess contribution

Solution from macuser_22

You can just report it now and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/of box 12 State withholding. Then you must enter the 2018 1099-R in to the 2018 tax return since the withholding is reported in the year that the tax was withheld. The 2018 code P will not do anything in 2018 but the withholding will be applied to 2018.

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 2016 "

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

On the "Which year" screen say that this is a 2018 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 2018 1099-R on your 2017 tax return to avoid having to amend in 2018.

The box 2a earnings will be taxable income reported on line 15b 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 form.

[macuser_22]

That is a year old post with 2018 dates.

In order do do that you must ask the IRA custodian  for a "return of  excess contribution" not just a distribution.   The IRA custodian must calculate the earnings and return the excess and plus earnings to you..   You should do that first so that you will know the amount of earnings to report.   Most custodians will cooperate and give you that in a timely manner.

[Telephus]

I had an excess contribution to my Roth in 2019, had the contribution and earnings withdrawn in March 2020, and received the 1099-R for the withdrawal in February 2021. How do I amend my 2019 return to report the earnings on the contribution?

[DanaB27]

Please enter your 1099-R on your 2019 amended return to report the earnings:

1. Click on the Search box on the top and type “1099-R”
2. Click on “Jump to 1099-R”  and enter your 1099-R as shown on the form.

Please see How do I amend a 2019 return in TurboTax? for instructions.

[psushu]

Dana, I had excess contributions to my Roth IRA.  Interest was $56 which is entered as wages for my 2020 1040SR on line 1.   However, my Tax on line 16 is reduced by $56 from what is on tax schedule.  Is this correct?

[DanaB27]

No, do not enter the earnings from the excess contribution as wages. If the excess contribution was for 2020 then please follow these steps to create a 1099-R:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning)
6. Box 2 enter the earnings of $56
7. Box 7 enter P and J 
8. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

If you report it now in your 2020 return then ignore the 1099-R 2021 when it comes unless there is Box 4 Federal Tax withholding and/or box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

[psushu]

So even though the 2020 1099R I received has 8 as the distribution code, I can change it to P or J??  I don"t think I claimed the interest in 2019.

[macuser_22]

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@psushu wrote:

So even though the 2020 1099R I received has 8 as the distribution code, I can change it to P or J??  I don"t think I claimed the interest in 2019.

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NO.    You are asking a different question.

A code 8 has  nothing to do with 2019 or code PJ.

A 2020 1099-R with Code 8 means a 2020 contribution returned on 2020.    Just enter the 1099-R that you have.

[DanaB27]

No, if you received already the Form 1099-R in regards to the withdrawal of excess contribution because you withdrew it in 2020 then enter it as shown. Please keep the code 8.

(Code P applies if someone notices the excess in 2021 before the due date and withdraws it in 2021. Then this 1099-R 2021 with code P and J has to be entered on the 2020 tax return.)

[psushu]

Thanks, Dana.  So I keep the code 8 and it will then register as income on line 1 of the 1040SR .  Which is what I presume it should.

Sorry to hassle you further however, my line 16 for taxes owed is decreased from the tax schedule  by that same amount in TurboTax. 

For example, line 1 is $56, the amount of interest from the 2020 excess contribution.  The tax schedule for line 16 indicates an amount of, let's say $11,815 owed.  But TurboTax is entering $11,759.  Exactly the same amount less that is entered in wages $11,815 - $56 = $11,759. 

I don't understand where that comes from. 

Again, much appreciate your assistance.

[macuser_22]

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@psushu wrote:

Thanks, Dana.  So I keep the code 8 and it will then register as income on line 1 of the 1040SR .  Which is what I presume it should.

Sorry to hassle you further however, my line 16 for taxes owed is decreased from the tax schedule  by that same amount in TurboTax. 

For example, line 1 is $56, the amount of interest from the 2020 excess contribution.  The tax schedule for line 16 indicates an amount of, let's say $11,815 owed.  But TurboTax is entering $11,759.  Exactly the same amount less that is entered in wages $11,815 - $56 = $11,759. 

I don't understand where that comes from. 

Again, much appreciate your assistance.

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Is this an excess deferral in a 401(k) plan or similar employer plan?

If it is then the box 2a amount when  you enter into the TurboTax 1099-R interview should add the box 2a amount to line 1 on the 1040. 

If a Traditional IRA the then the IRA/SEP/SIMPLE box should be checked and it will go on the 1040 line 4b.

[psushu]

Last year I erred in thinking that deferred compensation was still earned income when it was distributed.  So I took a distribution from my deferred comp and proceeded to put it into my Roth IRA account.  Don't worry the Deferred Comp has been resolved.  As has the Roth IRA contribution.  I withdrew it before April 15, 2020.

I realized the error and withdrew the money from the Roth IRA account  before April 15, 2020 along with the $56 in interest.  Hence, a 1099R with a code of 8.

So I owe tax on the $56.  But when I enter the 1099R info it into Turbo Tax, in addition to entering the $56 on line 1 of my 1040 SR, it also decreases the tax schedule amount on line 16 by the same $56, from $11,815 to $11,759.

That doesn't make sense to me.  Or is this some coincidence?

[macuser_22]

Line 16 is the tax on the amount of taxable income on line 15.     Increasing line 1 (income) by $56 should also increase line 9 and 11 by the same amount.     And line 15 should also increase.

[psushu]

Totally agree with everything you said.  Line 1 is $56 (no additional earned income), and lines, 9, 11 & 15 increased by $56. 

But using the tax schedules for my line 15 taxable income of $91,973, the tax table shows $11,815 for married filing jointly.   91,950  92,000  16,154   11,815

But my TurboTax has spit out $11,759 for line 16.  How does it get there?  What am I missing?

Really sorry to hassle you with this.  But I definitely appreciate your help.