I'm a 25 year-old who has a Roth IRA with Fidelity.
In 2016 my grandmother gave me a gift of money that I used to contribute $5,500 to my Roth IRA. However, my earned income for 2016 ended up only being about $2,100.
I worked with Fidelity to have my excess contribution of $3,400 returned.
Fidelity officially calculated that my excess contributions had earnings of $1,413. I was told that I will have to pay a 10% penalty on these earnings.
I am trying to amend my tax returns before October 16, 2017 to avoid a 6% penalty on everything (principle & interest) until I fix it.
In TurboTax Deluxe online, when I go to amend my 2016 returns, I go to Federal Taxes > Deductions & Credits > Traditional and Roth IRA Contributions. I input my original contribution of $5,500 and was told I contribution too much. Then I input my $3,400 return of excess. It brought me to a summary page showing my corrected net contribution for 2016: $2,100.
Everything sounds great... except one problem: I was never asked about the earnings on my excess contribution.
If I'm supposed to pay a 10% penalty on my $1,413 of earnings, where and how to I do this? Please help! Time is running out :(
Thank you!
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Only the return of contribution needs to be completed by October 16, 2017 to avoid the 6% excess contribution penalty. The amendment can be completed anytime before the 3-year statute of limitations expires. It appears that you have already taken the steps necessary to obtain the return of excess contribution.
The earnings are reported by entering the Form 1099-R that reports the return of contribution. With the excess contribution having been made in 2016 but returned in 2017, this will be reported on a 2017 Form 1099-R showing $4,813 in box 1, $1,413 in box 2a and code JP in box 7. When amending your tax return in 2016 TurboTax, you must enter this Form 1099-R and in the follow-up questions indicate that it is a 2017 Form 1099-R. This will cause TurboTax to include the $1,413 on line 15b of Form 1040 (resulting in a change in AGI shown on line 1 of Form 1040X) and to calculate the $143 early-distribution penalty on Form 5329 (appearing on Form 1040 line 59 and as a change to Other taxes on line 10 of Form 1040X. If the return of contribution was made after April 18, 2017, you must include a statement on your amendment that it is "Filed pursuant to section 301.9100-2."
Only the return of contribution needs to be completed by October 16, 2017 to avoid the 6% excess contribution penalty. The amendment can be completed anytime before the 3-year statute of limitations expires. It appears that you have already taken the steps necessary to obtain the return of excess contribution.
The earnings are reported by entering the Form 1099-R that reports the return of contribution. With the excess contribution having been made in 2016 but returned in 2017, this will be reported on a 2017 Form 1099-R showing $4,813 in box 1, $1,413 in box 2a and code JP in box 7. When amending your tax return in 2016 TurboTax, you must enter this Form 1099-R and in the follow-up questions indicate that it is a 2017 Form 1099-R. This will cause TurboTax to include the $1,413 on line 15b of Form 1040 (resulting in a change in AGI shown on line 1 of Form 1040X) and to calculate the $143 early-distribution penalty on Form 5329 (appearing on Form 1040 line 59 and as a change to Other taxes on line 10 of Form 1040X. If the return of contribution was made after April 18, 2017, you must include a statement on your amendment that it is "Filed pursuant to section 301.9100-2."
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