How do I enter a Roth IRA distribution to fix excess contribution which included federal tax withholding without a 1099-R form?

[polshgiant]

In 2018 I contributed $300 to my Roth IRA.  While doing my 2018 return (in April 2019), I learned that I am ineligible for contribution at all this year.  I used the broker's website to remove the entire $300 excess contribution and, since the account lost value, the withdrawal was less than the contribution.  I also chose the option to withhold 10% federal tax.  

• Withdrawal amount: $280.77
• Earnings: -$19.23
• Federal tax withholding: $28.08

I have read the TurboTax instructions as well as several posts about how to resolve, and it sounds like I can enter a 1099-R form even though I haven't received it yet.

Following those instructions, I created my 1099-R...

• Box 1: 280.77
• Box 2a: -19.23
• Box 2b: left both unchecked
• Box 4: 28.08
• Box 7: Codes P & J
• I left everything else blank

I then went the Roth IRA Contributions section of my return and changed my Roth contribution for 2018 to 0 (because I have now withdrawn everything I contributed in 2018).  For the "Your Excess Roth IRA Contributions for Prior Years" question, I specified 0.

Questions

1. Did I create the 1099-R form correctly?
   
2. Do I have to enter Form 5329 for the 10% early withdrawal penalty?
3. Do I have to create Form 8606?
4. Some of the instructions for resolving excess contributions seem to indicate that the above steps might be different if Box 4 has a value, which I think mine will because I opted to withhold 10% federal tax.  Do I need to do anything differently due to the 10% withholding?

[frostedj8]

Should the "IRA/SEP/SIMPLE" box be checked for a ROTH IRA excess contribution?

[macuser_22]

No.  The box 7 code says that it is a Roth.   The IRA box is only checked for a Traditional, SEP or SIMPLE IRA.

[frostedj8]

Thanks

[frostedj8]

With a ROTH that had a loss, wouldn't 2a be zero, since there is gain which can be taxed?

 I also thought that ROTH IRA distributions were not taxed, since they are post tax contributions, so why would Box 4 be filled out for income tax withheld?  

[macuser_22]

The code J says it is a Roth, the code P says it is a 2017 contribution returned in 2018.    If a loss then box 2a should be zero - you cannot deduct a Roth IRA loss.

It makes no sense at all to ever have withholding on a return of contributions that are not taxable or were returned in the tax year after the year of contribution because the box 4 tax withholding can only be applied to the year in which it was withheld.  For a code P that means that even if the 2017 contribution *was* taxable, the withholding could not be used in 2017 but would be have to be applied to 2018 tax.

A code 8J on the other hand that had taxable earnings might have withholding to pay the tax on the earnings because a code 8 means that it was returned in the same year as the contribution was made.

[macuser_22 · Accepted solution]

Almost, although because the excess was returning *in* 2019 then having tax withheld in 2019 for 2018 taxable income makes little sense, since when the 2019 1099-R comes next year in 2020 you will need to enter it into your 2019 tax return also.   The code PJ will not do anything on a 2019 tax return,  but the box 4 tax withholding will apply to your 2019 tax return (you cannot have 2018 tax withholding retroactive in 2019 - any 2019 tax withholding only applies to 2019 ).

*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.

[polshgiant]

Very helpful, thanks so much!

[polshgiant]

For anyone who see this in the future, the IRS help documentation for form 1099-R says "Do not enter a negative amount in any box on Form 1099-R."  So box 2a should be 0 instead of the amount you lost.

[taxgirl41]

Why are you recommending code "P" instead of code "8" (excess earnings & gain taxable in 2018)? I'm in nearly the same situation, except I didn't enter any federal withholdings....

[macuser_22]

@taxgirl41 - The code P or 8, depends on the year that the contribution was *for*.    For a 2019 1099-R a code P means a *2018* contribution returned in 2019.   A code 8 means a *2019* contribution returned in 2019.

A 2019 1099-R with a code P is reported on a *2018* tax return.  A 2019 1099-R with a code 8, is reported next year on a *2019* tax return - nothing would go on the 2018 tax return.

[This is assuming a 2019 1099-R that has not yet been received.  If it was a 2018 1099-R then you would already have the actual 1099-R and would just enter it as written.]

[taxgirl41]

@macuser_22 - Thanks so much! Got it figured out. Only downside is that when I pulled out the excess, I didn't factor in it raising my income, so now I've got a $20 excess contribution (instead of $250), after all this work :(