Roth IRA contribution that wasn't eligible

[niko6266]

Hi All,

I had made a contribution to my Roth IRA in 2018 which wasn't eligible as I make over the limit in my wages. I found this out while working on the taxes for 2018 and withdrew the money before April 2019. I also didn't do anything with it so there was no interest or earnings from it. I called the IRS and they said that I would only need to mention that the contribution wasn't eligible.

Now when I am working on the 2019 taxes I have my 1099R. I entered the two fields from box 7 which are P (Return of contribution taxable in 2018) and J (Early Distribution from Roth IRA). After I went through the next option it mentions that I will be paying extra tax on this money. Can someone help me out as to what letters need to be entered to get this processed correctly? I assume I have to also contact my financial institution to get this correct on the 1099R.

Thanks

[DanaB27]

No, you do not need to get the 1099-R corrected. If you haven't already included this withdrawal of contribution on your 2018 tax return then you will have to amend your 2018 tax return to included this 1099-R: How do I amend a 2018 return in TurboTax?

The P-code in box 7 stands for "Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2018". Therefore, you will need to include this 1099-R in your 2018 tax return. When you amend your 2018 tax return enter the 1099-R as shown. TurboTax will ask you "Which Year on Form 1099-R?" after entering the 1099-R; select 2019 and TurboTax will know to include it in your 2018 taxes. 

[niko6266]

Thanks for the reply. Even though the 1099-R is for 2019 I have to include it in the 2018 filings? Prior to filing my 2018 taxes I had called the IRS and they mentioned to me that when I received the 2019 1099-R that I would just mention "a withdraw contribution that wasn't eligible in 2018" and that would be enough. I'll give them a call tomorrow and confirm.

Thanks for the help

[JosephF8]

As @Dana827 mentioned this is properly included on your 2018 return.

If you haven't already included this withdrawal of contribution on your 2018 tax return then you will have to amend your 2018 tax return to included this 1099-R: How do I amend a 2018 return in TurboTax?

[niko6266]

I spoke with the IRS today and as stated I need to amend the 2018 tax filings. Do I just go back to my 2018 filing and treat the 2019 1099-R as a 2018 instead? What codes would I need to enter in box 7? They mentioned that I need to put in there that I withdrew the money because it wasn't eligible and that no earnings were made from this amount and pulled in a timely fashion.

[DianeC958]

Yes, you report the 1099-R as if you received it in 2018 the codes for Box 7 are J and P.

Make sure that the taxable amount for box 2a is $0.

[niko6266]

Hi Diane,

Thanks for the response. I went into Turbo Tax 2018 and entered the information just as it shows up in the 2019 1099-R.  With the codes P and J. When I get to the next step it says the following

"Based on the code in box 7 of this 1099-R, your're paying extra tax on this money" 

I spoke with the financial institution and they did confirm I did it correctly. Not sure why TurboTax is saying this. I noticed that the Federal  amount show 0 but my state now shows $30. Why would I have to pay tax on this to the state?

[DianeC958]

TurboTax is letting you know that you are paying a 10% penalty for early withdrawal from a retirement account.  The amount of the penalty is only being assessed on earnings that were withdrawn from the account.

For the state you are being taxed on the earnings of the retirement account since that it income to you.

[niko6266]

I didn't make any earnings on this money. It was a mistake that it was put into the Roth IRA and I removed it before any earnings were made. Do I need to just mark the line with the X where it say is not subject to state tax?

[DaveF1006]

Yes, check that box so you can be certain that you will not be charged state tax.