Look for Input Help on IRA and Roth-IRA

[jww2018]

I did a search and found some relevant information on this topic. But the generated forms are not what I expected. Can people help with the correct inputs in TurboTax? Here is the situation.

I contributed two of $6k to my Roth-IRA for 2019 and 2020 contributions in the middle of 2020. Later in 2020 (after Oct.15 deadline), I realized that my income was not eligible for both years.

So, firstly I withdraw $6000 for the 2019 contribution (got both my 2020 1099-R form with code J and 2019 5498 form).  Secondly, I recharacterized ~$6100 (~$100 earning) to a new T-IRA, and then convert it back of ~$6200 ($100 growth in T-IRA) to roth-IRA. I received both 1099-R forms with code N and 2. Three 1099-R forms in total.

My understanding is I have to pay %6 * 6k ($360) penalty for 2019 (ignoring the earnings). 

Question 1. Do I manually add code P along with J to trigger the 6% penalty in TurboTax? 

Question 2. Do I need to amend my tax return in 2019? Or can the form 5329 in 2019 be combined with 2020 5329 filing?

Question 3. For the recharacterization and conversion in 2020, how do I deal with the $100 excess contribution (earning) in T-IRA and the $200 excess contribution (earning) in Roth-IRA?

Thank you in advance for your inputs.

[DanaB27]

1) No do not add code P to the 1099-R with code J.  On your 2019 return you will have to enter the Roth contribution and if you are not eligible for the Roth contribution because of your MAGI then it will trigger the 6% penalty.  You will only have to pay the penalty for 2019 since you withdrew the excess contribution in 2020.

2)Yes, you will have to amend your 2019 return to add the penalty and Form 5329. Please see How do I amend a 2019 return in TurboTax?

3) Please follow these steps to enter the recharacterization on you 2020 return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount of $6,000
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $6,000 plus $100 earnings were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes"

In regards to the $100 gain before you recharacterized the contribution there is no tax or penalty on the earnings since the earning will be simply switched into the traditional IRA account.

For the 1099-R in regards to the conversion please follow these steps:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
8. Answer the questions about the basis

The $200 gain when you converted the funds to the Roth IRA it will be included in your taxable income. The rest of the conversion won't be included in your taxable income. You can verify your entry on line 4 of Form 1040.

[jww2018]

Thank you for your replies @DanaB27 .

A quick question on 2). I heard that only form 5329 in 2019 is needed, and I don't need to submit a 1040X for 2019. I only received 5498 form for my 2019 Roth-IRA, and 1099-R is for 2020.  Is that right?  Thanks.

[DanaB27]

If you filed a 2019 tax return then you will have to amend it to add Form 5329 unless you had entered the the excess Roth contribution already on the 2019 return. Then Form 5329 was already submitted.

Yes the 1099R 2020 with code J will be entered on the 2020 tax return. Please make sure you answer all follow up questions carefully after you entered all 1099-R. There are some questions in regards to your Roth IRA when you click continue on the "your 1099-R entries" screen that shows all your 1099-R. 

[jww2018]

@DanaB27In the 2019 amendment, where should I input the $6000 excess roth-IRA contribution? And do I need to amend the 2019 form before the 2020 filing?  Thank you.

[DanaB27]

Please enter the Roth contribution like this on you 2019 amended tax return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer all the question and if you had an excess contribution TurboTax will state at the end that you have a penalty.

It doesn't matter if you do the 2019 amendment before or after the 2020 filing.

[jww2018]

@DanaB27  I think I generated the right 5329 form in 2019. Line 25 shows the additional tax of $360 from line 23 and 24 of the excess contribution.  Can I just send only this form along with $360 check? Or do I need to send all the other forms? 

Another question is: do I need to amend the state tax?

Thank you.

[DanaB27]

No, you cannot only send Form 5329 since you filed a 2019 return. You will have to send Form 1040X, the new Form 1040, new Schedule 2, Form 5329, and a check.

It depends, what state are you in?

[jww2018]

@DanaB27It seems that I need to notify the state change as well although it's zero. TurboTax asked about the explanation on the amendment. How should I describe it in a correct and simple way? Thanks.

[DanaB27]

Please write "Reporting of excess contribution to the Roth IRA" as an explanation.

Yes, if your state requires it to be reported then please also file the state amendment.

[jww2018]

@DanaB27 For the earnings from the Roth IRA and T-IRA, are they considered as the excess contributions?  Thanks.

[DanaB27]

No, the earnings are not considered as an excess contribution. Please make sure when you enter the recharacterization that you only enter the contribution amount an not the earnings. The earnings will only be entered on the explanation statement.

Also, when you convert the amount to the Roth IRA only enter it in the 1099-R section, do not enter the converted amount in the IRA contribution section.

[jww2018]

@DanaB27For the 6% penalty of 2019 Roth-IRA contribution, do I need to pay any interest beyond the penalty? Thank you.

[DanaB27]

Yes, generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. 

[jww2018]

Do I just wait for IRS to tell me how much interest I own, after submitting 1040-x? Thanks