Excess Roth IRA Contribution - Amend Prior Year Tax Return

[JYWS]

In 2020, my wife and I discovered that we had overcontributed to our Roth IRAs.  We both withdrew our excess contributions before the tax filing deadline.

The broker informed me that I had  earnings of less than $1 on the withdrawn contribution, and that I would receive a 1099-R with the information the following year (2021).

I just received the 2020 1099-R with codes PJ, and from my research on these forums, I believe I am supposed to amend my 2020 tax return.

When I enter my 2020 1099-R information into the amended return, in box 7, I should still select Code P "Return of contribution taxable in 2018" even though it was a return of contribution in 2019, correct?

After entering this information, TurboTax should ask "Which Year on Form 1099-R?" and give me the option to select 2019 or 2020. If I select 2020, then TurboTax will calculate it correctly, yes?

[dmertz]

TurboTax's drop-down text is misleading when you are entering a code P from a 2020 Form 1099-R into 2019 TurboTax.  Code P technically means "taxable on the tax return for the year prior to the year of the Form 1099-R," but that's too much to put in the drop-down text.

If the amount in box 2a of the code PJ 2020 Form 1099-R is less than $0.50, it probably makes no sense to amend.  If this amount is between $0.50 and $0.99, that rounds to $1 of income on your 2019 tax return that is subject to income tax and a possible 10% early-distribution penalty, so even in that case the IRS would consider it to be a de minimis error on your tax return if it was omitted, which might make it reasonable not to amend just for this.  Of course if your 2019 tax return originally reported an excess Roth IRA contribution you would have to amend anyway to correct that.

Since it's a 2020 Form 1099-R, you must tell 2019 TurboTax that it's a 2020 Form 1099-R.  If you mistakenly tell 2019 TurboTax that it's a 2019 Form 1099-R, 2019 TurboTax will tell you that the taxable amount needed to be included on your 2018 tax return, which of course makes no sense.

[JYWS]

Thanks for the thorough reply.  

The amount in 2a was ~$0.60 so it would round to $1 in income.  I did also tell 2019 Turbotax that is was a 2020 1099-R.  It's not showing that I owe any additional federal or state taxes.

As for the possible 10% early distribution penalty, wouldn't that not apply since we both withdrew our excess contributions prior to the tax filing deadline?

[dmertz]

The penalty is 10% of $0.60, the result of which rounds to $0, so no penalty.