IRS form 5329 during withdrawal of excess contribution from traditional IRA

[Kmalesh]

Reg 5329 , I am not able to see that form in my TurboTax Delux Software, if someone can guide me where I can see it. 

I am 40 year old and have deposited $5500 into my wife traditional IRA account in ~Dec 2019 for 2019 year contribution, but due to total gross salary exceeded its limit, I cannot take tax advantage on that deposit, so requested to withdraw [ non-deductable / excess contribution]. Fidelity sent me excess contribution amount $5500 and earnings [ $11.05 ] along with a letter suggesting that I may need to file form 5329, and Fidelity will send my 1099-R form in Jan 2021. I think I have to file this withdrawal in 2019 tax filling, right ? Can I file TAX online using TurboTax Delux or I have to file tax paper base due to the form 5329? If online I can file, then where I can find this form in Turbo TAX Delux SW, as not seeing it anywhere in TurboTax Delux software. 

Note: My wife is working part time and her employer doesn't cover "Retirement Plan at Work", so I created her traditional IRA account. My employer does has "Retirement Plan at Work". 

[macuser_22]

See your other question:

https://ttlc.intuit.com/community/retirement/discussion/re-do-not-pay-any-penalty-the-irs-almost-nev...

[Kmalesh]

Thank you macuser_22, best ans so far. 

I have few more questions on the same line. While filing 1099-R form on Turbo-Tax seeing, below field not sure what to select  

1. box 2b check box  ??

2. box 7: selected 'P' , below that seeing one more drop box where I am able to find "8-Return of contribution taxable in 2019" , should I also select that ?

[macuser_22]

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@Kmalesh wrote:

Thank you macuser_22, best ans so far. 

I have few more questions on the same line. While filing 1099-R form on Turbo-Tax seeing, below field not sure what to select  

1. box 2b check box  ??

2. box 7: selected 'P' , below that seeing one more drop box where I am able to find "8-Return of contribution taxable in 2019" , should I also select that ?

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#1 No.  2b does not apply

#2 No.  Code P is correct.  It was a 2019 contribution returned in 2020.   (Code 8 is for a 2019 contribution returned in 2019 and you would already have the 1099-R if returned in 2019.)

[Kmalesh]

Awesome thank you so much.

After filling 1099-R seeing that Turbo-tax generated 8606 form "Nondeductible IRA", looks like this is correct, but Fidelity letter that I have received that indicates I may need to file IRA form 5329 with my tax return. Do I have to file 5329 or 1099-R [8606] is sufficient ? if needs to file 5329 then how can I do it in Turbo-Tax Delux if you can guide ?

[Kmalesh]

Yesterday I reply to you about not able to find form 5329 and Turbo tax created form 8606. Looks like Turbo tax SW by default doesn't have 1040 schedule 4 [ which might have entries from 5329 ] , right ? Any way to get  from 5329 and 1040 schedule 4 ? I have Delux. Appreciated your all reply and info. 

[macuser_22 · Accepted solution]

The 5329 form would only be necessary if box 2a reported taxable earnings and you are under age 59 1/2, the the returned earnings are not only subject to ordinary tax but an additional 10% early distribution penalty for being under age 59 1/2.   That should be automatically produced.

[Kmalesh]

True, in my case it is not generating 5329 form , so one possibility is that the. earning in not taxable [ only $11.5 ] or technical issue with Turbo tax SW, as I am under 59. 

[macuser_22]

What code is on box 7 on your 1099-R?

If under age 59 1/2 the code should be P1 or 81.

A 5329 is probably not required but there should be a Schedule 2 with the $1.00 of tax on line 6 and a "NO" a 5329 is not required (5329 is not always required to report the tax).

[Kmalesh]

Box 7: 81 [ It might come with P1 in Jan 2021 1099-R , but looks like for reporting in 2019 I have to use 81 ]

Thank you, seeing "Schedule 2 with the $1.00 of tax on line 6 " . 

[macuser_22]

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@Kmalesh wrote:

Box 7: 81 [ It might come with P1 in Jan 2021 1099-R , but looks like for reporting in 2019 I have to use 81 ]

Thank you, seeing "Schedule 2 with the $1.00 of tax on line 6 " . 

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I think I have repeated the same thing 3 times now - a 2019 contribution returned in 2020 MUST have a code *P1* in box 7 NOT 81.  The interview question that it

[Kmalesh]

Thank you, you are champ. 

Last question, where can I see similar entries [ 10% penalty, tax on IRA earning ] in CA state text ? Any form I need to file ? Mostly Turbo tax should automatically generate it based on my 1099-R entry, right ?  

[macuser_22]

CA requires a copy of the Federal return be attached to the CA return.  CA uses that and only has certain adjustments to the Federal form.

[Kmalesh]

Hi Champ,

As we discussed above that I have to enter code '8' & '1' in Box 7 for my 1099-R [ Which haven't received and will come in Jan 2021 with 'P' '1' codes].

Turbo Tax, Smart Check is asking me to fix error: 

Check This Entry

Form 1099-R (Fedility Investments): Box for 2019 Form 1099-R should not be checked unless there is a code 'P' or code 'R' in box 7.

Checkbox selected : code P box

Should I ignore this Turbo Tax warning ? 

[Kmalesh]

Please discard my previous ask, as found the answer. Even though box 7 code 81 looks correct I have to select code 'P1'. update me if my understanding is not correct ?