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

[gonglien]

@dmertz my contribution to Roth for 2020 was $4000 made in July 2020. After receiving my W2 and some other documents, I now have to remove this amount as well.

[dmertz]

I was told it already passed the October 15th deadline for 2019 tax return and they would make a normal distribution of this amount to remove it. This was done mid January 2021

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None of this is consistent with receiving a code 8J 2020 Form 1099-R.  You'll have to contact the Roth IRA custodian to figure out why they sent you this Form 1099-R.

If the excess contribution for 2019 wasn't distributed by a regular distribution until January 2021, the excess from 2019 remains subject to another 6% penalty on your 2021 tax return.

[gonglien]

@dmertz  Thank you. I will contact them as soon as possible. What would be the correct code for 1099 - R that I should have received?
You mentioned another 6% fine would be for 2021 tax return..you mean this fine is for tax year 2020 correct?

[dmertz]

A regular distribution from a Roth IRA will have code J, T or Q by itself, depending on your age and how long your have had the account.  No code 8 or code P accompanying a code J.

[dmertz]

The additional 6% penalty i mentioned is for not correcting the excess from 2019 before the end of 2020.

The only thing that would make this all make sense is if you actually did a proper return of your 2019 contribution before October 15, 2020 and you are now overlooking that you had done that.  Contact the Roth IRA custodian to figure this out.  Figuring it out isn't going to to be possible on this forum.

[gonglien]

@dmertz Thank you so much. Really appreciate your patience explaining this to me. I was not aware the code was not consistent with what I was explained to (ironically this was my first time in quite a few years to make a contribution to Roth IRA). 

I just went back to check and found out the correction was made 12/30/2020. I was notified on January 2nd so I had the wrong memory that it was done January 2021. Sorry for the wrong information.

[gonglien]

@dmertz I sent email to the IRA custodian since it’s the weekend. Will call them tomorrow.

on the meantime, I did a little research myself on the codes. Regardless what they told me on the phone before (regular distribution), it seems code 8 is correct for this situation:

“According to the 2020 Instructions for Forms 1099-R and 5498, Code 8, Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2020, signifies that excess contributions were deposited and returned in the same year (regardless of the year for which the excess was attributed). For example, use code 8 to report a contribution deposited in April 2020 for tax year 2019 and later removed in 2020. 

Code 8 may be used with codes 1, 2, 4, B, J, or K.” 
 You mentioned that If I did do this correctly for tax return 2019 (corrected before October 15th 2020), the correct code would be 8J. So even if this is done on time, the earning is still treated as early distribution (box 2a)  and subject 10% fine plus tax?

[hybridtaxguy]

I over contributed to my roth ira in 2020, I'm 29 years old. I over contributed by 4,000, when I noticed I had added too much I withdrew my over contribution plus the earnings, for a total of 4585.87 (585.87 of earnings)

added 2k in March 2020, 2k in October 2020, withdrew early December 2020.

I entere dmy 1099-R, it looks like im paying tax on the full 4585.87, since it was an over contribution all done within the current year, my understanding is that I should just be paying tax on the 585.87 (the earnings). Am I missing something?  I don't see any prompts from Turbotax on how to explain that it's a removal of excess contributions and I'm paying about $1500 in tax on this.

IRS Box Item Value

1 Gross Distribution $4,585.87

2a Taxable Amount $4,585.87

2b Taxable Amount Not Determined Yes

2b Total Distribution No

4 Federal Income Tax Withheld $458.59

7 Distribution Code(s) J8

7 IRA/SEP/SIMPLE No

14 State Tax Withheld $0.00

17 Local Tax Withheld $0.00

I've spoken with 6 Turbotax reps who could not help me.  I would love an answer.

[dmertz]

gonglien, yes the earnings are taxable and, if you were under age 59½ at the time of the distribution, also subject to an early-distribution penalty.

[dmertz]

chadbrucato, your Form 1099-R was not prepared in accordance with the instructions for Form 1099-R.  Normally on a code J8 Form 1099-R the payer will not mark box 2b Taxable amount not determined and will include only the taxable earnings in box 2a, in this case apparently $585.87.  If the Roth IRA custodian calculated the earnings, there is no reason that the Roth IRA custodian should have don otherwise.

The fact that box 2b Taxable amount not determined is marked seems to suggest that you did the earnings calculation and told them the total to distribute and they chose not to get involved in determining if your calculation was correct.  If that's the case, it seems that they should have left box 2a blank.

If they did the earnings calculation, I suggest getting them to correct the Form 1099-R to have only $585.87 in box 2a and to have box 2b Taxable amount not determined unmarked.  Otherwise, you'll need to submit a substitute Form 1099-R (Form 4852) to show this and provide explanation, which will require that you print and mail your tax return.

[hybridtaxguy]

Betterment told me to fill out an 8086, but that doesn't seem to get prompted within turbotax.

[dmertz]

Form 8606 has nothing to do with a code J8 form 1099-R.  In fact, the instructions for Form 8606 explicitly say not to report a return of contribution on Form 8606.

[hybridtaxguy]

Thank you for your replies, if I go the 4852 route as I'm sure betterment will tell me my 1099-R form is correct, do I then change the 1099-R to what it should be?  In that I'll put 585.87 in box 2 and check taxes have been calculated?

Thank you a ton for your help, spent 4.5hrs trying to talk to Turbotax today, I keep getting level 1 customer service reps who can't help me and they transfer me to another level 1 service rep.  I'm livid with Turbotax's support.

[dmertz]

Yes, a correct Form 1099-R would have 585.97 in box 2a and box 2b Taxable amount not determined would not be marked.

[Mrohwf24]

Dmertz,

Following this thread. Thanks for all of the knowledge. I contributed something like $8K over the $6,000 2020 limit in my Roth IRA. I got my excess contributions returned to me in two installments. One for about $5400 in December 2020 and another for $4K in January 2021 (Trying to convey I’m now firmly under the $6K limit). The 1099-R I received in late January 2021 only had the first installment listed, with 8J distribution codes. I contacted the custodian and they put in a case to get me a corrected 1099-R showing the the total of both installments. I have not yet filed my 2020 taxes. Assuming the corrected 1099-R will also have 8J codes and nothing in box 2a (I am fairly certain I’m only withdrawing principle?) do I need to report anything at all on my taxes? 
You’re doing God’s work with the knowledge share. Appreciate any and all assistance.