Removing Excess Roth IRA Contribution Penalty

[dhilliards]

I fully funded 2021 Roth IRA's for myself and my husband, who is not employed, in March 2021.  We are both over 59 - 1/2.  In April 2021,  I realized that my earned income for the year would be less than the $14,000 in contributions so I withdrew the excess contribution from MY Roth IRA (because my husband was not home at the time to authorize the transaction on his account).  My 1099-R shows codes 8 and J.   I am attempting to enter the Roth IRA information in Turbotax under "Deductions and Credits-Traditional IRA-Roth IRA" and it is showing that my husband has an excess contribution for which we are charged a penalty.  How can I correct this?

[ThomasM125]

When you enter the ROTH IRA contribution, TurboTax will tell you if you have an excess contribution and give you an opportunity to indicate that you withdrew it by the due date of your tax return. If you indicate that you withdrew it, you should not get a penalty.

The form 1099-R should just show the income earned on the funds as taxable in box 2(a). Is this what happened? 

[dhilliards]

You are correct that my 1099-R shows only the income earned on the funds as taxable in box 2(a).

Turbotax does not show that I have an excess contribution nor does it give me the opportunity to indicate that that I withdrew the excess contribution by the due date of the return.   It does, however, indicate that my husband has an excess contribution and gives him the opportunity to indicate that he withdrew it prior to the due date of the return (perhaps because I am listed first on the return or because the earned income permitting the contributions is attributable to me?).  In any case, I cannot figure out how to get the system to reflect that the excess contribution was withdrawn from my account so that we are not charged a penalty for an excess contribution that  was not made to my husband's account.

[MaryK4]

@dhilliards  If you indicated that you withdrew the excess contribution, TurboTax will not create the Form 5329 which shows the excise tax if you DO NOT withdraw the excess contribution.  The 1099-R should show the excess contribution withdrawal to the IRS.

An excess IRA contribution occurs if you:

• Contribute more than the contribution limit.
• Make a regular IRA contribution for 2019, or earlier, to a traditional IRA at age 70½ or older.
• Make an improper rollover contribution to an IRA.

Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. The tax can't be more than 6% of the combined value of all your IRAs as of the end of the tax year.

To avoid the 6% tax on excess contributions, you must withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.