Reporting excess contribution to the Roth IRA without having received a 1099-R

[sankalp-money]

While filing taxes for the year 2018, I realized that my entire contribution to Roth IRA was in excess due to MAGI limit.

I filed for an extension with the IRS and thereby extended my deadline to Oct 2019.

I sold all of the holdings in my Roth IRA and once that money was settled I requested my IRA administrator (Fidelity) to return all of the money back to my bank account as an excess contribution. They didn't withhold any taxes on the entire amount (initial deposit plus earnings). I got 100% of my initial deposit plus the earnings back in my bank account.

Now my main question is how can I list this activity while filing my taxes?

Because I also earned some income on my Roth IRA contribution for 2018, so I would need to pay a penalty for early withdrawal on that income because I'm 30 years old. Fidelity hasn't issued me a 1099-R for the above said withdrawal. I only see a Form 5498 for IRA Contribution Information on Fidelity.

What should I do?

[dmertz]

For the distribution of the entire account to constitute a return of contribution, presumably this contribution was your only contribution to the Roth IRA and was made to establish the account.  You can enter the 2019 Form 1099-R as if you have already received it even though you will not be receiving the form from Fidelity until early 2020.  The Form will have the following

• Box 1:  total amount distributed (the entire account value in this case, contribution plus earnings)
• Box 2a:  the earnings amount
• Box 2b Total distribution marked
• Box 7:  codes P and J

When entering this into 2018 TurboTax, be sure to indicate in the follow-up questions that this is a 2019 Form 1099-R.  TurboTax will include the earnings amount in income on Form 1040 line 4b and on Form 5329 to calculate the 10% early-distribution penalty on the earnings.  (If you were over age 59½ at the time of the distribution you'll need to claim and Other reason exception to the penalty on the earnings amount.)

You should also have entered the Roth IRA contribution into TurboTax under Deductions & Credits and when TurboTax indicated it was an excess contribution indicated that you had the entire contribution amount (not the distribution amount) returned.  TurboTax will ask you to provide an explanation statement describing the contribution and it's return, in this case indicating the amount of contribution returned, the total amount distributed, the earnings amount included in the distribution (amount distributed minus amount contributed), that this was your only contribution ever made to the account and that the distribution closed the account.

When you receive the actual 2019 Form 1099-R in early 2020 you can ignore it.  The explanation you provide with your 2018 tax return will have taken its place.

[sankalp-money]

Thanks for your response! I contacted my account administrator (Fidelity). They will not issue an early 1099-R to me in this year. To get the withdrawal details, they issued me a letter that has the following information-

1) the excess contribution amount was $X
2) the total applicable earnings or loss for the computation period is $Y
3) the total amount to be returned to you is $X + $Y. 

So I will use this data to enter in boxes 1 & 2a on the 1099-R. 

I also confirmed how will they report this activity- as a contribution or normal Roth distribution?
They said they'll report it as a "Renewal of excess contribution" . It'll be reported as a withdrawal made for correction. 

[sankalp-money]

Hello! This is a follow up question. 

Apart from the four fields that you mentioned in your answer below, Turbotax is prompting me to provide "Payer's Federal Recipient's identification number" from the 1099-R as well. 
I won't receive a 1099-R until Jan 2019 so I don't have that information with me. I talked to Fidelity Retirement Services, they don't have this information either, they're saying they don't have any 1099-R generated yet, so they don't know that number yet. 

What should I do in this case?

Thanks!

[macuser_22]

They should certainly know what their Federal EIN is or can get it.  You might try taking to someone else or a supervisor.     The EIN is required - if you cannot get it then you will have to wait for the 1099-R.

[dmertz]

Regarding the information from Fidelity, the amount of contribution returned is $X.  The amount distributed is $X + $Y.

You can enter just about anything you like for the EIN.  Since there is no tax withholding, the details of the Form 1099-R are not transmitted with the e-filed tax return.  The Form 1099-R is entered into TurboTax only to get the earnings to appear on Form 1040 line 4b and on Form 5329 Part I.  If you don't feel comfortable entering a made-up EIN you can always leave that entry blank and print and mail your tax return.

[allar]

I am having a similar issue. I was told that I have to remove $3620 out of $6000 contributed when filing my 2019 return. I went to Vanguard triggered the removal and got the money and earnings into my bank account. Vanguard told me I wont get the 1099-R until next year 2021.

Now I go in and create the 1099-R information manually. When I get to the section where the excess contribution is recalculated I am told that I need to remove another 80$ since my income has gone up from adding the distribution amount. 

So now should I go into Vanguard and start another removal of the 80$, and then repeat the process of reporting another 1099-R amount? This is a bit crazy because I suspect the next round of recalculation after reporting this 1099-R will indicate I am still over the limit by a few dollars. 

Anyone have any insights they could offer on how I deal with this? I am tempted to withdraw more dollars from Vanguard to break the cycle, but hoping there is a better solution. 

[macuser_22]

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@allar wrote:

I am having a similar issue. I was told that I have to remove $3620 out of $6000 contributed when filing my 2019 return. I went to Vanguard triggered the removal and got the money and earnings into my bank account. Vanguard told me I wont get the 1099-R until next year 2021.

Now I go in and create the 1099-R information manually. When I get to the section where the excess contribution is recalculated I am told that I need to remove another 80$ since my income has gone up from adding the distribution amount. 

So now should I go into Vanguard and start another removal of the 80$, and then repeat the process of reporting another 1099-R amount? This is a bit crazy because I suspect the next round of recalculation after reporting this 1099-R will indicate I am still over the limit by a few dollars. 

Anyone have any insights they could offer on how I deal with this? I am tempted to withdraw more dollars from Vanguard to break the cycle, but hoping there is a better solution. 

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You have discovered the problem of an excess contribution while you are in the "phase-out" range.  Each return will increase your AGI which in turn makes more excess.   When in the phase out range you need to remove more than the first calculated amount to account for that.

You can, if you want,  just pay the 6% penalty ($4.80) on the $80 excess and remove it as a normal distribution before the end of the year,  that will not be taxed because it is your own contribution.  By paying the 6% penalty then any earnings on the $80 can stay in the IRA - only the $80 need be removed.

[allar]

Thanks a lot, this is very helpful.

Yes, I am going to pay the penalty for the small excess and then do a normal distribution of the stated excess amount from the Vanguard Roth account. Will there be a penalty on this normal distribution being taken from Roth since I am not 59.5 yet? Will this create the necessary forms for the distribution taken, to file in 2021 for the 2020 return? Or will I have to do something special in 2021 for the 2020 return?

[macuser_22]

You will receive a 2020 1099-R to report that distribution.

You can always withdraw your own Roth contributions tax and penalty free.

One of the followup questions will ask for your prior year contributions not previously withdrawn.

Be sure to remove the excess before the end of the year of there will be another 6% penalty.