Roth IRA Early distribution

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Last year I opened a Roth IRA account and contributed 10k (after tax). Several months later I realized my income exceeded the Roth IRA cap, so I withdrew all the 10k and 400 capital gain. When I'm reporting tax this year, TurboTax calculated 3.5k federal tax due for my Roth IRA "early distribution". What can I do to avoid this?

ThomasM125Answer

Alumni - Intuit

You would make an entry for a substitute form 1099-R and put the withdrawal amount in box 1 and the earnings in box 2(a). You will see an option to create a substitute form 1099-R on the screen that says Tell Us Which 1099-R You Have when you go to enter the form 1099-R. Code the substitute form 1099-R as "8" in box 7, for excess contributions plus earnings.

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DanaB27

Employee Tax Expert

Did you request the return of excess contributions plus earnings? If this was an excess contribution for 2021 withdrawn in 2021 then your Form 1099-R should have codes J and 8; box 1 should be the excess contribution plus earnings and box 2a should be only the earnings of $400. Only the earnings will be taxable income and also subject to the 10% early withdrawal penalty.

If your Form 1099-R shows this as regular distribution then might need to contact your financial institute to correct this.

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