Excess Contribution to Roth IRA in 2018, results in 2019 1099-R, now TurboTax wants me to amend my 2018 return?

[adg222]

I accidentally made an Excess Contribution to my Roth IRA and declared it in my 2018 taxes.  I earned too much income and Turbotax told me I had to take some of that contribution out or my account or face a penalty.  So I did.  And in my form 5329 of (2018) I declared an Excess Contribution of $3000 in box 23 and 24 of Form 5329.

Fast forward and now I'm doing my taxes for 2019, and low and behold, I have a 1099-R retirement form with a gross distribution of $2816 from my bank with qualification codes PJ.  I enter it into Turbotax and now it tells me I need to amend my 2018 taxes.  This doesn't make much sense to me, I declared my excess, and removed it from my account exactly like turbo tax told me.   Why do I need to edit my 2018 taxes.  What do I need to do?

[macuser_22]

Then you did it wrong in 2018.    There should have been no entries on the 5329 lines 23 & 24 since you removed the excess.  You shroud have just removed the contribution as if it had never occurred. You did NOT owe the 6% penalty at all if you requested a timely return of excess contribution which the 1099-R code PJ says that you did.  Only any earnings reported in box 2a on the 1099-R would be taxable and possible subject to a 10% early distribution penalty if you are under age 59 1/2.

Amend 2018 and remove however you reported it to remove the 5329 and then enter the 2019 code PJ 1099-R and when asked in the interview, check that it is a 2019 1099-R - not a 2018 1099-R.

[macuser_22]

If you got an email with my post then read it again since I  edited it to add information.

[adg222]

So I did a little more digging... Here's what happened in 2018.  I contributed the full 5500, but only took out 2500 before April 15 2019 deadline.  This is what TurboTax advised me to do, based on my income....  What frustrates me is that this advice was incorrect, relooking at my gross income, I had made just barely more than 135000 and I should've been advised to take ALL of the 5500 out.  So I'm going to be penalized for taking turbo tax's advice of only removing 2500.  But the excess number of 3000 in my 2018 return form 5329 is probably correct, and doesn't need amending?  

[macuser_22]

You must report any of the earnings on the amount removed that will be in box 2a in the 1099-R, nto the whold amount.  The earnings are taxable in 2018.  

Check your 2018 5329 form line 23.    Does that include the amount that was returned?  If so then in 2018 you failed to tell TurboTax that $2,500 was removed in the IRA contribution interview.   The 5329 should only have the excess, if any, that remained after a part of the contribution was removed.

Unfortunately, if you removed just the amount of excess and not a bit more, then when you remove it your AGI will increase making a new excess so that might still leave a small 5329 penalty.     It is simplest to just pay that penalty and remove that additional excess now with a normal distribution.    Paying the penalty means that any earnings on that additional excess can be ignored.

You will probably be due a refund for 2018 if that is what happened.

[adg222]

My Form 5329 is correct on line 23 and 24, set at 3000.  But I think it is incorrect on line 25, as that is set to 0...

So I think I need to amend my 2018 return and set line 25 to $180 (6% of 3000) ?

[macuser_22]

If the value of your Roth IRA on Dec 31 2018 was zero, then zero on line 25 is correct.   There was a question  in the IRA contribution inteview that asked for that value.