I withdrew excess contributions from ROTH IRA but custodian did not charge penalty over earnings

[jjtapiav]

I withdrew some excess contributions I made to my ROTH IRA this tax year (2020) and my custodian calculated my earnings over that money, adding them to the money that was given to me (so I got X withdrawal + Y earnings). However after everything was said and done they did not charge me the 10% penalty over those Y earnings . How can I report and pay that penalty? Can I include it in my federal tax returns for 2020 (I have not filled those yet while waiting for this excess contributions withdrawal to go through)

edit: I may have been getting my wires crossed an the 10% penalty on early withdrawals only applies to contributions made to Traditional IRAs, NOT Roth IRA's. Is this correct?

[macuser_22]

---

@jjtapiav wrote:

edit: I may have been getting my wires crossed an the 10% penalty on early withdrawals only applies to contributions made to Traditional IRAs, NOT Roth IRA's. Is this correct?

---

The return of contribution is not taxable reguardless of the IRA type but the earnings returns are for either IRA type.

If returned in 2021 then this will be reported on a 2021 1099-R you will receive next year that will require amending 2020 to report it.

*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2020 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 but as a return of contribution with a code "JP" in box 7 - 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 14 State withholding. Then you must also enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld.

The 2021 code JP will not do anything in 2021 but the withholding will be applied to 2021.

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 2019 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2021 1099-R. - That makes it taxable in 2020 and not 2019

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 2021 1099-R on your 2020 tax return to avoid having to amend in 2021.

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.