What/how do I report a removal of excess Roth IRA contribution made in 2018?

[sjsingh2]

Thank you so much!  I am following the instructions you shared.  However, there is no place to 'indicate that you opened a Roth IRA before 2019'.  Am I missing something? Where do I find this?

Can you help me find the exact steps on how to enter excess contributions for each of the past year so turbotax can do the 6% fine calculation correctly for each of the past year's excess? Right now, I am only seeing one filed to enter all past excess contributions for prior years. I think I need to split the past years excess for each year and report that in Turbotax for the correct calculation of penalty?

[sjsingh2]

It just says 'Your Excess Roth IRA Contributions for Prior Years' and asks me to fill the total excess over past years.  This way how till Turbotax accurately calculate 6% fine for each year separately?

[sjsingh2]

@dmertz 

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choose yes here since that's the only way I can get to report past year's contributions - even though I havent really withdrawn from past years - is this acceptable?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

[tmepfox]

@dmertz - I apologize for adding to this post in the middle - not sure how else to do it.

I made a Roth contribution in in 2018 for $6500.  This year I realized I was only eligible for a partial contribution but removed the entire $6500.00 in June 2020.

I followed your instructions as below to amend the 2018 return:

When amending with 2018 TurboTax, simply enter the Roth IRA contribution under Deductions & Credits -> Retirement and Investments -> Traditional and Roth IRA Contributions.  If the contribution is an excess contribution, TurboTax will automatically prepare Form 5329.

Turbo Tax calculated the excess to be $6060 (as I was in between the lower & upper limits) and prepared 5329 with this amount on line 23 & 24 with $364 as tax on line 25.  I believe this is correct.  However, in another post that I asked the question I was told that my excess should be noted as the entire $6500.  Can you confirm which is correct - below is my question and their answer

Q - Even though I removed the 2018 contribution of $6500.00 in June 2020, based on my AGI I was still eligible to contribute $440 (so $6060 excess). On 2018 & 2019 Form 5329 line 18 the, I should only put the excess contribution correct?  Even though I removed the entire $6500 I should not be taxed/penalized on the additional $440 removed, since I'm eligible to remove contributions anytime (I am under 59 1/2 and have had the account for > 5 years).

A) No.   Your 2018 & 2019 excess was $6,500.     An excess contribution penalty has nothing whatsoever to do with the normal tax on taking a distribution.    Age makes no difference.  What the 2018 & 2019 excess was has nothing to do with how much you are eligible to contribute in 2020.  The 6% penalty *repeats* each year that the excess remains.  It is a separate 6% penalty for 2018 & 2019.

If removed in 2020 then  that is a 2020 distribution and removing your own contribution is not taxable reguardless of age.

[dmertz]

If your excess contribution for 2018 was only $6,040, lines 23 and 24 of your 2018 Form 5329 should show $6,040 and line 18 of your 2019 Form 5329 should show only $6,040.  Since you made a regular distribution of $6,500, line 20 of your 2019 Form 5329 will show $6,500, resulting in $0 on line 22.

[sjsingh2]

Hi @dmertz 

I have a Roth Q for you on this:

2014-2018: Excess Roth contribution 5,900

Total Roth Account Contributions as of Dec 31 2019: 11,900

Roth Value: 22,800

I am trying to remove my excess roth and any earnings from 2014 - 2018 -> this means that ideally I'll have to remove 5900+ any earnings from those 5900 excess roth till date.  However, given the FIFO rule of Roth, even when I try to remove those 'earnings' from Roth for past years, it wont remove them before removing all my contributions!

Q: Does IRS allow to keep earnings for past years in the Roth and not have to remove them and just have the contributions removed? Since it's impossible to 'get to the earnings piece' before removing all contributions from Roth, given the FIFO rule of removal?

[dmertz]

It's a mistake to remove the earnings under these circumstances.  There is no requirement to do so when you have been assessed the 6% excess contribution penalties.  Your regular distribution to resolve this excess in 2020 and beyond should only be for the amount of the excess contributions, $5,900.  Because you will only be removing the $5,900 originally contributed, it will all be from contribution basis and therefore will be nontaxable.

[sjsingh2]

That's a big relief, @dmertz!

1) Just so I am understanding this correctly, you are suggesting NOT removing earnings till date from the excess roth contributions (which is 5900 total) from 2014-2018?

2) This way I don't have to report those earnings as income and pay additional taxes on them for those past years (2014-2018) in which the contributions were made + pay 10% early withdrawal fine on those earnings?

3) Just take out 5900 contribution, pay 6% penalty till date for it through form 5329 and be done with this. Next year, when I get 1099R, report as 0 taxable earnings from it?

[dmertz]

All are correct.

[sjsingh2]

Hi @dmertz @DavidS127 

Merging the 2 posts so I can have your both's expert opinions.  Can you please help me reconcile what to do here for the 2014-2018 excess roth contributions, as regards accounting for any past earnings?

1) Here is the parallel thread where  @DavidS127 responded:

https://ttlc.intuit.com/community/retirement/discussion/re-excess-roth-ira-contribution/01/1672416#M...

He is suggesting I need to account for earnings from past roth contributions from 2014-2018 and adjust for them in my past tax amendments - meaning show earnings from contributions made in those years as extra income in those years, pay taxes on them for that year and also 10% early withdrawal fine on earnings for that year, in addition to filing for 6% penalties for those years

2) What @dmertz is saying is the opposite: "It's a mistake to remove the earnings under these circumstances.  There is no requirement to do so when you have been assessed the 6% excess contribution penalties.  Your regular distribution to resolve this excess in 2020 and beyond should only be for the amount of the excess contributions, $5,900.  Because you will only be removing the $5,900 originally contributed, it will all be from contribution basis and therefore will be nontaxable"

[DavidS127]

It is correct that excess contributions withdrawn after the last date to make corrective action does not require the distribution of the income earned on the excess contribution.  You can distribute only the amount of the excess contribution for years prior to 2019, and do not need to amend the prior year tax returns.

[sjsingh2]

Woot Woot! Thanks so much both of you for your enormous support these past few days.  Truly amazing support here from you both and the TurboTax Team! I am finally ready to file my taxes and clean up my Roth for good! Thanks again for your promptness and detailed answers these past few days!

[kapsabhi]

I made ROTH IRA contribution in 2019 and came to realize that it was excess when I am filing my taxes. I have submitted the request to withdraw the excess completely prior to filing deadline of July 15, 2020.

I had invested the above money into stock and made an earning in 2020.

Two questions:

1. Will I receive a revised 1099-R right away that needs to be reported in my 2019 Tax Return?

2. Can I file 2019 tax return reporting I have requested withdrawal and deal with 1099-R in 2020 Tax Return filing?

[kapsabhi]

I made ROTH IRA contribution in 2019 and came to realize that it was in excess when I got to filing tax return. I have submitted the request to withdraw the excess amount completely prior to filing deadline of July 15, 2020. The request has been submitted but not processed yet (July 14, 2020)

I made $300 earning on 2019 Roth IRA investment during calendar year 2020.

Two questions:

1. Will I receive a revised 1099-R right away that needs to be reported in my 2019 Tax Return or will it go in 2020 Tax Return?

2. If I don't get 2019-R and get profit/loss statement on the account where excess was removed, where do I report it on my tax filing?

[kapsabhi]

I made ROTH IRA contribution in 2019 and came to realize that it was in excess when I got to filing tax return. I have submitted the request to withdraw the excess amount completely prior to filing deadline of July 15, 2020. The request has been submitted but not processed yet (July 14, 2020)

@dmertz @DavidS127 

I made $300 earning on 2019 Roth IRA investment during calendar year 2020.

Two questions:

1. Will I receive a revised 1099-R right away that needs to be reported in my 2019 Tax Return or will it go in 2020 Tax Return?

2. If I don't get 2019-R and get profit/loss statement on the account where excess was removed, where do I report it on my tax filing?