Excess Roth IRA Contribution & Reversed It Within An Hour, What Now?

[kattmanndoo]

Want to know if there is any way I can avoid the 6% penalty applied for the excess Roth IRA contribution. Was working in Turbotax Premier and came to the Roth IRA contribution section prompting me that I should consider contributing in 2020 to save on taxes. I went right online to my brokerage account and transferred $6000 from my taxable account into my Roth IRA account and categorized it as a 2020 tax year contribution. Then go back onto Turbotax and then it tells me that I am not eligible to contribute anything since I am over the income limit this year. Frantic, go back to my brokerage online and transfer $6000 out of my Roth IRA account and back into my taxable account. I am now asking my brokerage to make sure this 'corrective' distribution will be categorized as such (versus a normal distribution which I am not eligible for without penalty). Now Turbotax has registered an additional $360 tax due for this “less than one hour” mistake. Is there anyway around this? Seems very harsh for a mistake like this which I fixed in minutes.

[macuser_22]

First, since it was returned to you,  remove it form the TurboTax contribution interview as if you never entered it.

Second, if there were earnings then that will be 2020 taxable income that will be reported on a 2021 1099-R that you will receive next January.

Wait for the 1099-R.  If box 2a is zero, which it will probably be, then there will be nothing more to do.

[kattmanndoo]

Thanks for your reply!  Further responses/questions:

"First, since it was returned to you, remove it form the TurboTax contribution interview as if you never entered it.”
I would love to do this if possible. But my brokerage has already reported that this was contributed (and apparently will to IRS). Minutes later I took it out through a corrective distribution and sent the funds back to where it came from in my brokerage’s taxable account. Can I truly just not enter it in TurboTax? I would be relieved if this is the case.

“Second, if there were earnings then that will be 2020 taxable income that will be reported on a 2021 1099-R that you will receive next January.”
I don’t think I'll have to concern myself with any earnings on this activity since the cash funds ($6K) went in to the Roth IRA account and the same amount of funds in cash were sent out of Roth IRA within an hour.

[kattmanndoo]

This has been fixed -- I mistakenly input in TT an excess Roth IRA payment for prior year not for 2020 tax year. So when I went back in TT, I changed that and now I owe no additional $360. Have to admit the prompts from TT on which year you contributed to Roth IRA and excess Roth IRA are confusing. Thanks for your help!!!