ROTH IRA Excess Contribution

[moonknightzz]

In the year 2020, I contributed too much to my ROTH IRA. I went to my brokerage to get it fixed. They were able to remove the excess along with the earnings and add them to my contributions for the following year. I have a couple of questions.

a) When I file my taxes, do I report the amount I contributed INCLUDING the excess or do I report the new fixed amount that EXCLUDES the excess contribution?

b) Do I need to report my earnings from the excess even though there were simply carried into the next year? 

c) What fees do I have to worry about? 

[DanaB27]

a)When you enter your Roth contributions it gives you the option on the “You have currently a penalty” screen to enter how much of the excess contribution you withdrew. Please enter the whole amount contributed in the Roth IRA contribution interview and then enter the amount of excess contribution withdrawn (no earnings).

b)Yes, you will have to report the distribution of the excess contribution and earnings. Please follow these steps to create 1099-R:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning)
6. Box 2 enter the earnings
7. Box 7 enter P and J 
8. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

c)You will have an 10% early withdrawal penalty on the earnings.

[Jcarace5]

Hello,

Follow up on this topic. While filing for 2020 tax year. In turbo tax I entered the amount of excess contribution of $6000. It then asks "Contributions withdrawn before the due date". My question is, do I just enter the $6000 contribution amount, or do I also include earnings that were withdrawn? For example if I made $1000, do I enter just the $6000 contribution amount or do I enter $7000 in that field? Thank you.

[Cynthiad66]

You enter the amount that is on the Form 1099R in that field.  Only deal with the Form 1099R amount.  Box 2 on the Form 1099R is handling the Earnings. 

Please follow these directions from @DanaB27

Yes, you will have to report the distribution of the excess contribution and earnings. Please follow these steps to create 1099-R:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning)
6. Box 2 enter the earnings
7. Box 7 enter P and J 
8. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

You will have an 10% early withdrawal penalty on the earnings.

[Jcarace5]

Thank you.

Since the excess contribution was just found out the 1099R wont be available until early next year. That is when I will fill out that section of turbo tax and file it. 

I guess I am just wondering, as for right now, under the "deductions & credits" section. I went under the roth IRA option. I entered that I had 6000$ of excess contributions for year 2020. When you press next, it then asks "contributions withdrawn before due date" and asks for a dollar amount. Again, I don't have a 1099r yet but I know the amount that was pulled out of the account (contributions 6K plus earnings amount). Do I enter the full amount (contributions plus earnings) or just the excess contribution amount, meaning $6000?

Once you click next on that screen, the next page just shows the IRA deduction summary as $0 and then it goes back to the main "deduction and credits" page. This section of turbo tax doesnt ask for the break down of the 1099R, which I won't get until next year, and file next year.

Thank you

[ThomasM125]

@Jcarace5 You would enter the amount of the excess contribution, or $6,000 in this case.

In 2021 you will get a form 1099-R reporting the distribution, but you need to report it in 2020 so you can pay tax on any income earned on the excess contribution. You could wait until you get the 1099 form and amend your 2020 tax return, or you could enter the distribution now before you file the 2020 tax return.

To report the earnings on the excess contribution, you should enter a Substitute form 1099-R and enter it on your 2020 return. You will see an option for this when you see the screen Tell us Which 1099-R You Have. 

Enter in box 1 the distribution amount. In box 2 enter the earnings. Enter code "P" in box 7. Work through the questions in TurboTax after you entered the 1099-R until you see a question regarding why you made the distribution, to which you will respond it was a return of an excess contribution.

[Jcarace5]

Thank you!

My only other question...

If I use the substitute form this year, when I get the official1099-R form next year from the company, do I just keep that for my records versus having to file it come tax time next year since I filed the substitute form this year? I don't want the IRS to think I made an excess contribution again. Thank you again.

[DanaB27]

You can ignore the 1099-R 2021 when it comes in 2022 since you have already reported in 2020 unless there is Box 4 Federal Tax withholding and/or box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

Please be aware, selecting/using a substitute 1099-R might prevent you from e-filing.