Tax Year Prior to 2020: Excess Roth IRA Contribution

[adlamo]

So if sell my 2019 over-contribution for a net loss, I assume I will I still get a 1099-R for the transaction, but it will just show a 0.00 for box 2a. If this is the case, then:  

Do I even need to enter anything proactively in my 2019 taxes to prevent having to ammend them when i get my 2020 1099-R? Other feeds have stated you can enter the transaction proactively knowing you'll get a 1099-R next year, but in my case, i will have a net loss, not a net gain. It seems i either could just not enter anything (since no gain), or proactively enter the transaction showing the zero gain.

[dmertz]

If there is a loss such that box 2a shows $0, you don't have to enter the code JP 2020 Form 1099-R into 2019 TurboTax since doing so would have no effect.

[adlamo]

Next year I will receive a 1099-R for the transaction, and it will show zero gain in box 2a (since excess contributions were withdrawn at a net loss), but there will still be info in box 1 showing I made a distribution. So even though I sold my excess contribution for a loss, shouldn't I still enter the information so the IRS knows there was a distribution? I had assumed yes.

So i guess my question is: assuming I "should" proactively enter the transaction into my taxes before i get the 1099R, what code will be in box 7 when there is zero in box 2a. Typically it is "PJ" when there is a gain, but will it still be PJ if I sold for a loss?

Thanks so much.

[DavidS127]

No, don't enter anything in your 2019 taxes if you withdrew the excess Roth before the due date of your 2019 tax return.  And, because you have a loss for the period of time before the excess contribution was withdrawn, you won't need to amend your 2019 tax return when you get the 2020 1099-R because there are no earnings to report.

That 2020 1099-R will report the excess contribution minus the loss in box 1, a zero in box 2a and a code JP in box 7.    The JP code tells that IRS that it was the withdrawal of an excess contribution from a Roth by the due date, and the zero in box 2a tells the IRS there is no income to report.

[adlamo]

another related but different question (for past years):

Let's say I receive a 2019 1099-R for excess contribution removal with a taxable gain (box 2a has positive number) and code PJ, this means the taxes apply to 2018 and I must ammend my 2018 taxes to add the form. Am I correct that I DO NOT also enter that form into my 2019 taxes? Basically, the tax form should only be entered for 2018 taxes only, right?

[macuser_22]

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@adlamo wrote:

another related but different question (for past years):

Let's say I receive a 2019 1099-R for excess contribution removal with a taxable gain (box 2a has positive number) and code PJ, this means the taxes apply to 2018 and I must ammend my 2018 taxes to add the form. Am I correct that I DO NOT also enter that form into my 2019 taxes? Basically, the tax form should only be entered for 2018 taxes only, right?

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That is correct.   A 2019 code PJ can only be reported on an amended 2018 tax return and the earnings in box 2a will be taxable.   A 2019 tax return will just tell you to amend 2018 and do nothing else.

[dmertz]

Only in the unusual case where taxes were withheld from the return of contribution would the code PJ 2019 Form 1099-R need to be entered into 2019 TurboTax.  The box 2a amount is taxable on the 2018 tax return but the box 4 amount is credited on the 2019 tax return.

[kstheory]

@dmertz  I have that situation where the 10% withholding is recording on my subsequent year's 1099-R.

In my case, I realized my contribution to Roth was an excess just before I filed my return in 2018 and asked Vanguard for the return, which was processed but not before April 15. So this year I got a code PJ 2019 1099-R showing a taxable income amount in box 2a AND a withholding in box 4. I have entered the 1099-R into my 2019 and no taxable amount and no penalty flows into my return, which seems correct because I am amending the 2018 return. But the withholding amount flows into my 2019 return, which I'm not sure makes sense. I am amending my 2018 return and entering the 2019 1099-R and indicating to TT that this is a 2019 1099-R. So the taxable amount flows into my return. So far so good. TT also calculates the 10% tax penalty BUT TT does not credit the withholding.

On the one hand everything from the 1099-R flows into a return somewhere only once, but is this correct? How do I get it so that the witholding and penalty flow into the return for the same year? Or should I not bother?

[sjsingh2]

Hi David @DavidS127 ,

I am in the exact same situation. 

1) So, you are saying, if I removed my excess contributions made in 2019 and in early 2020 (since contributions till July 15th of 2020 can count towards 2019 tax year contributions) before tax deadline - which I did and had as NET LOSS on removing them; I don't have to worry about any 1099-R entries, amendments etc for 2019 filing as well as for down the line?

2) Also, when looking up the codes in trying to create a substitute 1099-R, I barely have any info (if I decide to do a substitute 1099R stating 0 earnings from the withdrawal from Box 2a).  I looked up 'JP': Doesnt it make sense to use 'J8' instead, if we are talking about 2019 contributions? 'P' refers to 2018 and hence the confusion.  Can you clarify?

[DavidS127]

Yes, if the Roth contribution in 2019 was for 2019 (not 2018) and your trustee returns those amounts to you net of losses, you won't need to do anything else for your 2019 tax return.

You won't get a 1099-R until next year.  It will be a 2020 1099-R, to be entered in your 2020 taxes.  Because it will have a code JP in box 7, the IRS will know that it was to withdraw a 2019 excess Roth contribution before the due date of the 2019 tax return.  You don't need to prepare a substitute 1099-R.

@sjsingh2

[sjsingh2]

Thanks so much David @DavidS127  for your timely response!

A few follow-ups:

1) So, when turbotax asks me how much I contributed to Roth in 2019, should I just say '0' and be done with it? As if it never happened?

2) For 2020 Tax year, I'll fill 1099R that I receive next year with the JP code you mentioned - Thanks for this!

3) I am also trying to clean up my past excess roth contributions: I made excess contributions in 2017 and 2018. I am removing them now but still have to pay fine on those for all past years (I'll be amending those) but also for 2019 and 2020. I couldnt find a way to populate form 5329 on TurboTax this year. How do I pay this fine for 2019 and waht paperwork/reporting do I need for this? Is there a way for me to locate this in the software? Do I also need to update a 8606 for this excess roth contributions for past years etc?

Many thanks for your help!

Simran

[DavidS127]

Yes, for 2019 excess Roth contributions removed before the due date of the 2019 return (with losses), it is as if the contribution never happened (other than entering in your 2020 tax return the 2020 1099-R you will get for the removal of the 2019 contribution).

For the 2017 and 2018 excess Roth contributions, you'll also want to get those out in 2020, so that 2019 is the last year you pay the penalty on those.  You'll get 2020 1099-Rs for these as well.  Because these excess contributions are being removed after the last date to take corrective action without penalty, there is no need to remove the earnings associated with the excess contributions prior to 2019.

To report on the 2017 and 2018 excess Roth contributions in 2019, click the "magnifying glass Search" icon on the top row, enter "excess roth ira contribution" in the search window and press return or enter, and then click on the "Jump to excess roth ira contribution" link.  Click the box that you have a Roth IRA, and then continue through the screens until you get to the "Do You Have any Excess Roth Contributions" screen.  Answer Yes, and you'll next get a screen to enter the amount of the 2017 and 2018 contributions that you had not withdrawn before the end of 2019.

[Edited 7/13/2020| 4:50 pm PDT]

[sjsingh2]

Appreciate the info, David.

1) It does seem that I'll have to file for 2017 and 2018 tax amendments once I get the 1099R forms next year for any interest earnings corresponding to the contributions made in 2017 and 2018? Even though they are 2020 forms, those earnings will count towards 2017 and 2018. If I am understanding you correctly, will the 2020 1099-R forms be used in 3 places: 2020 tax filing, amending 2017 and 2018 taxes with any interest earnings even though I will pay the fine in 2019 tax year, as you suggested?

2) For 2017 and 2018 excess roth for 2019 filing, I am only seeing this: 'Enter your Excess Roth IRA Contributions for Prior Years'.  There is only one place to cumulatively add all past years excess contributions instead of each year? Am I missing something? Any instructions on getting turbotax to enter and accept each past year's excess? I'd think this is needed to the accurate calculation of 6% penalty etc?

[sjsingh2]

@DavidS127 

Clarification: It seems TurboTax only provides the option to enter excess contributions in the 'context of recharacterizing roth back to traditional IRA' when I am trying to find ways to report past excess roth that still sit in 2019 tax filing and are applicable for 6% penalty for each of the past years.  Is it ok if I process with the 'recharacterization to traditional IRA' option since it seems that's the only way I can fill in past excess contributions etc?  I am concerned this will also create false enties into 8606 form indicating i put that money in traditional IRA when clearly I didnt!

Here are the steps I am doing:

>Deductions & Credits

>Select Roth IRA contributions

>Enter Roth IRA contributions for 2019: I enter the excess amount there

>Let Us Track Your Roth IRA Basis

>Withdraw from Your Roth IRA Before 2019? I choose yes here since that's the only way I can get to report past year's contributions - even though I havent really withdrawn from past years - is this acceptable?

>Enter Prior Year Roth IRA Contributions - It asks for one cumulative number to report all prior contribution sum here

>Any Roth IRA Conversions before 2019? Again, even though this isnt right, I said yes - so I could find ways to report each of the past year's excess contributions etc. It asks me to report for each past year conversions made from traditional IRA to Roth etc...which technically, is not what i did! I worry that this is wrong and may create more complications!

I am not sure if I am doing this correctly.  Can you please help me find the right steps?

[sjsingh2]

I was able to figure this out.  Appreciate all your help, David!