Removal of excess Roth contribution

[Smorr017]

I made an excess Roth contribution in 2023 and removed it with earnings in 2023. I received my 1099-R, and the IRA box is not checked. I researched this, and that box is only for Traditional/SEP/Simple IRAs, so this appears to be correct. However, when I don't check that box in Turbo Tax, it goes on to ask me to identify the type of plan I withdrew money from. The only options without that box checked are:

1. Qualified retirement plan (pensions, 401k, 403b)

2. Nonqualified annuity (commercial annuities)'

3. Modified endowment contract (not common)

None of these make sense to me, and there is nothing in the "Learn More" of any of these that mentions Roth IRA. How do I move forward, because at least one box has to be checked?

Also, since I did remove the excess contribution before the tax deadline, do I still owe the 10% early withdrawal penalty for being <59.5? I'm unsure if the "corrective distributions made before the due date of the return" applies to me. 

Thank you.

[AnnetteB6]

Since you removed the excess Roth contribution and earnings in 2023, your Form 1099-R distribution code in box 7 should show an '8' and 'J'.  This would define the distribution as a return of contribution taxable in 2023 and an early distribution from a Roth IRA.  If this is not what is shown on your Form 1099-R, you should request a corrected Form 1099-R.

You will not owe the 10% early distribution penalty on the earnings.  The tax law regarding this was changed starting December 22, 2022.

[Smorr017]

@AnnetteB6 

It does have 8J, but that does charge me the 10% penalty. The only option I’ve found not to get the 10% penalty is entering 8T (Roth distribution with exception). But I don’t meet any of the exceptions for early Roth distribution, so I guess that’s why it’s 8J. If the law has been changed for Roth removals, TT hasn’t caught up to that. 

But my main question was what to do about the follow-up question after entering my 1099-R. I only have those 3 options to choose from, and none are pertinent to a Roth withdrawal. If I choose qualified account, it gives me the list of exceptions to the penalty pertinent to qualified plans, one being a corrective distribution prior to the tax deadline (exception #21), and putting the full amount of my distribution there does remove the penalty also. But a Roth is not a qualified plan, so I don’t feel that’s the right way to go about it. 

Any advice on what to do here??

[AnnetteB6]

I attempted to duplicate your situation in TurboTax Home and Business, but I had different results.  For my case, there was messaging on the screen stating that the early distribution penalty would apply, but it was not charged on the tax return.  The follow-up questions that you are seeing also did not come up for me.  

Do you have other Form 1099-R that have been entered?  What version of TurboTax are you using, Online or CD/downloaded version?  

If you have not done so, try deleting the Form 1099-R and re-enter it.  

If you would like to submit a diagnostic tax file so I can take a closer look, that might help.  The diagnostic file will not contain personally identifiable information, only numbers related to your tax forms.  Follow the instructions below and post the token number along with which version of TurboTax you are using and what states you are filing in a follow-up thread.

Use these steps if you are using TurboTax Online:

• Sign in to your account and be sure you are in your tax return.
• Select Tax Tools in the menu to the left.
• Select Tools.
• Select Share my file with agent.
• A pop-up message will appear, select OK to send the sanitized diagnostic copy to us.
• Post the token number here. 

If you are using a CD/downloaded version of TurboTax, use these steps:

• Select Online at the top of the screen.
• Select Send Tax File to Agent.
• Click OK.
• Post the token number here.

@Smorr017 

[Smorr017]

@AnnetteB6 

I can tell it's applying the penalty, because my refund goes down by exactly 10% of the earnings on the one 1099-R that has taxable earnings. When I change it from 8J to 8T, the 10% comes back. It's only $161, so not a big deal, and I'm most bothered by the fact that TT keeps making me choose between 3 options that don't apply to my situation in order to move forward. I have the CD/Download version. I have four 1099-R's total. Two are for removals we did in early 2023 before the tax deadline for 2022 contributions, but they are still 2023 forms. We took losses on both of those, so there was no taxable amount, and I created substitute 1099-R's for those last year (entered 0.00 on line 2a). I can't imagine I need to amend my 2022 tax return since I created substitute 1099-R's and there is no taxable income/impact. The other two are for removals we also did in 2023 for our 2023 contributions. My husband's was for a loss, but mine had taxable earnings. I did have them withhold 24% for federal taxes when I did the removal. Whenever I enter this specific 1099-R with earnings is when the situation happens where TT wants to help me find out if I can reduce my tax burden by finding an exemption. I have tried deleting it and re-entering twice. This is when I get prompted to choose between the 3 options that don't apply and then I get asked to look through the exemptions for that particular type of plan. I really don't know what to do here other than just randomly choose one and then not enter anything for different exemptions. It just seems to be a glitch in TT where the option for Roth is missing. I don't know why you don't get his question if you're entering earnings and choosing 8J. I would think all the versions of TT would have the same f/u questions, but I could be wrong..

[Smorr017]

@AnnetteB6 

Also, we could be talking about different penalties. I don't think I'm being charged the 6% penalty for having an excess contribution, because I removed it before the tax deadline. But there is still a 10% penalty because I removed earnings prior to being 59 1/2. I don't know anything about this law being changed, and I think this 10% penalty is probably appropriate. Just wanted to throw that out in case we're talking about different penalties here. But that question from my screenshot is not making any sense to me.

[Smorr017]

@AnnetteB6 

Here is what it tells me as I get to the end of my federal return..

[DanaB27]

As AnnetteB6 indicated, the tax law changed for the 10% early withdrawal penalty. Please see Pub 590 Certain corrective distributions not subject to 10% early distribution tax.

1. Click "Continue" after all 1099-R are entered.
2. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

I cannot recreate the follow-up question you mentioned when entering Form 1099-R with codes 8J. Did you try to delete and reenter Form 1099-R? Please make sure that you enter everything exactly as shown on Form 1099-R. 

If the error continues then please send us a token as AnnetteB6 suggested. The instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

Yes, you do not need to amend your 2022 tax return since you created substitute Form 1099-R when you filed the 2022 tax return.

@Smorr017 

[Smorr017]

@DanaB27 

@AnnetteB6 

Token is 1195478, and I'm using TurboTax Premier, CD/Download version.

I did enter the 1099-Rs exactly as shown on the form, and I deleted and re-entered the problematic one with earnings several times. Code 8J does not seem to waive the 10% penalty, and I do not get the f/u question "Did you use your IRA to pay for any of these expenses." The only way I get that question is if I check the IRA/SEP/Simple box (in box 7), and I have confirmed with the institution that issued the form that this box should not be checked for my situation. That box is only supposed to be checked for Traditional/SEP/Simple IRAs. I've confirmed that with my own research. Maybe Roth distributions were not included in this change to the law? The problem is still that my f/u question does not give me the chance to choose Roth IRA, which is ridiculous since code 8J already indicates this. I chose one of the other options and just didn't enter any numbers for the exemption options just so I could move forward and finish my taxes. 

Thank you.

[DanaB27 · Accepted solution]

Thank you, I reviewed your return. The issue with the follow-up question comes from the Form 1099-R code PJ for the taxpayer. If you remove it then you will not get the follow-up question you mentioned and be able enter the amount of earnings under "Corrective distributions made before the due date of the return" on the "Did you use your IRA to pay for any of these expenses?" screen. Then TurboTax will not calculate the 10% penalty on the taxpayer's Form 1099-R with code 8J.

I cannot see why this Form 1099-R with PJ triggered the wrong follow-up question, was it imported? Or entered manually? 

For your information, you do not need to enter the 2023 Forms 1099-R with code PJ on your 2023 tax return since you did not have any tax withholdings on these forms. A 2023 Form 1099-R with codes PJ belong on the 2022 tax return but you do not need to amend your 2022 return since you stated that you created substitute Form 1099-Rs when you filed. You can delete both Form 1099-R with code PJ from your 2023 tax return.

@Smorr017 

[Smorr017]

@DanaB27 

Thank you so much! This worked, and I did get my $161 back after removing those two forms and answering the f/u IRA question. I entered them myself, and I have no idea why they were triggering that question either. I did notice that no matter how many times I entered PJ in box 7, when I re-opened them to check them they had been changed to JP every time. Luckily I didn't have earnings on those, so I could remove them. 

I'm starting to question whether I created the substitute 1099-R forms last year (or correctly if I did). It was almost a year ago, and I remember doing so much online research trying to figure out what to do and what codes to choose. I also wasn't sure if I was supposed to report the Roth contributions even though they were removed, and I just did my best. Would it be possible for you to take a look at my 2022 return and see if it looks ok? I didn't have any earnings for either of those forms, so there is no tax implication (unless I somehow took a penalty I wasn't aware of). I created a PIN for you if that's possible. Thanks again!!

1196078

Still TurboTax Premier, Desktop/Download version

[DanaB27 · Accepted solution]

I reviewed your return, you did not enter any Form 1099-R on your 2022 return. But you do not need to amend the 2022 return to add the 2023 Forms 1099-R with code PJ because you did not have any earnings on the returned excess contributions. Therefore your tax return would not change and TurboTax would only add an explanation statement.

@Smorr017 

[Smorr017]

@DanaB27 

That's good news, thank you! I must have given up on trying to figure out the box 7 codes on the substitute 1099-R and just decided to say I didn't make any Roth contributions in 2022. I think that was basically the same outcome and less complicated. Thank you so much for all your help!