TurboTax Deluxe not handling 'taxable amount' of 1099-R for a Roth IRA early distribution

[greatheart8]

In 2019, my wife and I each contributed to newly opened Roth IRAs before we learned that our income exceeded the limit, meaning we were not eligible to contribute. We immediately withdrew both contributions and the small earnings made in the brief time. The 'Taxable amount' (box 2a) in the 1099-Rs for both of us show just the earnings. Nevertheless, TurboTax adds my whole withdrawal to my taxable income (Form 1040, line 4b); interestingly, since my wife is 60, TT doesn't add any of her amount not even the earnings. I understand that since I'm under 59 1/2 that I'll need to pay an early distribution penalty (which TT includes), but I shouldn't have to pay tax again on the income that I contributed.

With a Roth IRA, you are always supposed to be able to withdraw post-tax contributions without paying tax again. TurboTax isn't allowing that to happen. This seems like a TurboTax bug.

Any thoughts or suggestions? Thanks for any help.

[macuser_22]

What code is in box 7 on the   1099-R's.

If you requested a "return of contribution" like you should have it should be a code J8.

If just a J then you took a regular distribution.

You can always withdraw your own Roth contributions tax and penalty free.

If you spouse is over 59 1/2 then nothing will be taxable if she has had any Roth IRA for at least 5 years.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

One of the followup questions will ask for your prior year** contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.

Note: **Prior year - any current year Roth contributions should be entered into the IRA contributions section. They will not show up in the prior years contributions but will be accounted for on the 8606 form that calculates the taxable amount.

[greatheart8]

Thank you very much, @macuser_22! Your reply helped us greatly. I understand it was not given as tax advice, but it was a very useful insight. I really appreciate you taking the time to write up such a helpful response.