During 2020, I contributed to ROTH IRA for 2019 and 2020 then learned that I have excess contribution to IRA thus will have to pay penalties. I withdrew all the ROTH IRA contributions for 2019 and 2020 to avoid the penalty. Now I see I owe early withdrawl penalty on it. Is there any way to file/cancel these properly and avoid penalty?
More information is needed. Did you just do a full withdrawal without telling the plan what you were doing? Or did you inform them that you needed to withdraw excess contributions? When did you withdraw the money and close the IRA? What code is in box 7 of your 1099-R?
I called them and told them the situation and filed a form to withdraw.
box 7 code is "8J".
Thank you!
@chongyi2000 wrote:
I called them and told them the situation and filed a form to withdraw.
box 7 code is "8J".
Thank you!
@macuser_22 can you help me follow up here?
@chongyi2000 One thing you need to do is file an amended 2019 return to report the excess and pay the penalty, unless you already paid the penalty. You can only remove the excess to avoid tax up until the filing deadline of the 2019 return which was July 15, 2020. If you didn't remove the excess in time, you owe the penalty on your 2019 return.
Then for 2020, if you withdrew the excess before the end of 2020, you have two tax issues. The withdrawal of the original contributions should not be taxable, since this was a Roth IRA. Code 8 seems to apply to both traditional and Roth IRAs so there must be a place in Turbotax to indicate that this was a Roth IRA so you don't owe tax on the return of the original contributions. Another user may be more familiar with this step in the program.
However, the withdrawal of the earnings is subject to income tax plus the 10% penalty for early withdrawal. (I believe you could have rolled over the earnings to a new Roth IRA, but since you took the money out, that part counts as a taxable early withdrawal.
@Gr8isGreat wrote:
On
form 1099-R box 7 has a Q in the box.
What is your question? Code Q indicates a qualified distribution, it should not be taxable.