TurboTax failure: Earnings on excess IRA contributions

[FinePrintFanatic]

As I was preparing my 2023 return with TurboTax, I realized I made an excess contribution to my Roth IRA in 2023. TurboTax prompted me to request a removal of the excess contribution plus earnings thereon prior to my (extended) tax filing deadline to avoid the 6% tax. I completed this and clearly communicated this to TurboTax via the prompts. The earnings amount was already known and I thought that would just be included in my 2024 return alongside the 2024 Form 1099-R for the transaction. But no, turns out the earnings need to be included in the year of the excess contribution (i.e., 2023). TurboTax clearly knows this and as I was just preparing my 2024 return instructed me to file an amended 2023 return. This raises a couple questions for me:

(1) Why doesn't TurboTax automatically prompt you file the 2023 return correctly, including the earnings on the excess contribution (if the amount is already known)?

(2) How can I avoid this issue in the future?

(3) Why does TurboTax not allow e-filing an amended return for prior years (e.g., file an amended return for 2023 in early 2025) even though the IRS allows it?

This is all just a ridiculous waste of time, hassle, and paper/ postage, for minimal earnings on the excess contribution. Supremely frustrating. I thought we pay TurboTax for getting this sort of thing right in the first place!?

[DanaB27]

1. There is a link with instructions on the penalty screen in the IRA contribution screen. The "What can I do" link mentions that the earnings have to be reported and links to detailed instructions how to do this.

2. Links within the TurboTax provide additional helpful information when you come across a new tax situation where you might need more guidance. Also, you can ask questions in the Community anytime to get advice if you are unsure about how to handle the entries in TurboTax.

3. Yes, unfortunately, you cannot e-file prior year amended tax returns in TurboTax. I'm not aware of the reasons.

[FinePrintFanatic]

Thanks for this! Yes, this is exactly the screen I was referring to. I saw this and entered the withdrawn amount in the box "Contribution Withdrawn Before Due Date of Return" box. What I don't understand is why:

(1) TurboTax then doesn't automatically ask you what the earnings on the withdrawn excess contributions were and ensures that income is reported?

(2) Given TurboTax fails to correctly deal with this likely quite common issue, how to actually jury rig a workaround? I still need to figure out how to correctly incorporate/ report the earnings in my amended return. I saw you highlighted a link to an article 3 levels down the rabbit hole at the bottom. Are you able to share it? Hopefully I'll find the answer there?

(3) Not a question but not allowing e-filing amended returns if you prepared with TurboTax and purchased that year's edition is a pretty solid argument to switch to a different tax software for me... Pretty pissed about all this.

Clearly this is not up to scratch. If TurboTax support sees this, here's two opportunities for product fix/ improvement right there. The software isn't cheap, so at least it should be good...

[DanaB27]

You will enter the 2024 Form 1099-R with codes P and J on your 2023 amended return. Please see How do I amend my federal tax return for a prior year?

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

Thank you for your feedback I will forward it.

Also, once you file your 2024 return, as long as the settings to receive communication from Intuit don’t block it, you will see a pop-up message or receive an email with a survey asking you about your experience. I encourage you to leave your notes and comments there. “Voice of the Customer” notes and comments are read and acted upon.