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

[macuser_22]

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@KREC wrote:

Thanks. There is also an 8606 part III filing required? 

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Yes.  TurboTax automatically includes that for a Roth distribution.

[SteveK123]

@macuser_22 

Hi, I need some help as well on this. This is my situation.

1. Overcontributed in 2019 by $9,444 ($4,722 or me and $4,722 for my wife).

2. Overcontributed in 2020 by $12,000 ($6,000 for me and $6,000 for my wife).

3. Amended 2019 and 2020 returns with the 1040-X and 5329 forms and paid the 6% penalty for both years ($566 for 2019 and $1,286 for 2020)

4. Withdrew the excess $10,722.00 from both of our Roth IRA's in December 2021 ($21,444.00 total between the two IRA's).

5. We both received 1099-R forms for 2021 from Fidelity. Only boxes filled out is box 1 for $10,722.00 and box 7 with code J.

When I went to import these into TurboTax it dramatically lowered the refund I was due. My understanding is if you take the money out, you only pay the 6% penalty and not any early withdrawal when you remove the excess contribution from the IRA's. So my understanding is the IRA withdrawal in 2021 should have no impact on my 2021 taxes. Any help on how I should enter these 1099-R's would be greatly appreciated.

Thanks!

Steve

[fanfare]

[incorrect answer removed by me]

[SteveK123]

@fanfare 

Thanks for the reply. So what code should it be? I read on some sites that I would still be on the hook for the 10% early withdrawal fee because we are under 59 1/2.

[macuser_22]

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@SteveK123 wrote:

@macuser_22 

Hi, I need some help as well on this. This is my situation.

1. Overcontributed in 2019 by $9,444 ($4,722 or me and $4,722 for my wife).

2. Overcontributed in 2020 by $12,000 ($6,000 for me and $6,000 for my wife).

3. Amended 2019 and 2020 returns with the 1040-X and 5329 forms and paid the 6% penalty for both years ($566 for 2019 and $1,286 for 2020)

4. Withdrew the excess $10,722.00 from both of our Roth IRA's in December 2021 ($21,444.00 total between the two IRA's).

5. We both received 1099-R forms for 2021 from Fidelity. Only boxes filled out is box 1 for $10,722.00 and box 7 with code J.

When I went to import these into TurboTax it dramatically lowered the refund I was due. My understanding is if you take the money out, you only pay the 6% penalty and not any early withdrawal when you remove the excess contribution from the IRA's. So my understanding is the IRA withdrawal in 2021 should have no impact on my 2021 taxes. Any help on how I should enter these 1099-R's would be greatly appreciated.

Thanks!

Steve

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You should have each received a 1099-R with a code J with $10,722 in box 1.   When entering those you indicate that it was your own prior contributions that you were removing.   No earnings should have been withdrawn since you paid the 6% penalty.  Code J is the proper code since you missed the time limit to have a return of contribution plus earnings so a normal distribution was required.

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

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.

[SteveK123]

@macuser_22 

First off thank you so much for the reply to my question as well as the others you have answered. I went through the continue option like you mentioned but never saw the follow-up question that said anything like "contributions not previously withdrawn. " 

This is series of questions I saw:

• Have you ever taken a disaster distribution before 2021? - No
• Owned Any Roth IRA for Five Years (me)? - Yes
• Owned Any Roth IRA for Five Years? (wife) - Yes
• Were Any Roth IRAs Open (Was the Roth IRA open on December 31, 2021)? - Yes
• Withdraw from Steven's Roth IRA Before 2021? - No
• Enter Prior Year Roth IRA Contributions (Confirm net regular contributions prior to 2021 that remain in the Roth IRA) - $6,000. Was not exactly sure to put here. I did contribute 6,000 in 2020 but removed it in December of 2021 as it was an excess contribution.
• Any Roth IRA Conversions? - No
• Enter Excess Contributions - It automatically had the correct amount of 10,720
• Tell Us the Years (select any of the following years that you converted a traditional IRA to a Roth IRA) - None
• Adjust Roth IRA Due to Divorce? - No

Then it went to another set of questions:

Let's see if we can reduce your early withdrawal penalty

• Did you use your IRA to pay for any of these expenses? - None of the options applied to me.
• We Were Unable to Lower Your Tax Bill - It said: Based on your entries so far, your extra tax bill is: Me $472, Wife $239 , or 10% of the money you took out. This number may change as you add more info to your return.

I also went through this with a live expert and they didn't really have anything to add. So its still not clear to me why its showing an additional tax burden for the removal of the excess contributions. Any help is appreciated here.

Thanks!

Steve

[macuser_22]

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@SteveK123 wrote:

@macuser_22 

•  
• Enter Prior Year Roth IRA Contributions (Confirm net regular contributions prior to 2021 that remain in the Roth IRA) - $6,000. Was not exactly sure to put here. I did contribute 6,000 in 2020 but removed it in December of 2021 as it was an excess contribution.

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You had at least $10,722 - the amount returned.

[capntangen]

I'm also confused. 

In Jan 2021, I withdrew my excess roth contributions from 2019 ($670) into a traditional IRA. I also contributed $6000 to a traditional IRA for 2020 and then converted the IRA to my roth that I've had since 2013. 

I paid the $40 fee for 2019 and re-submitted my taxes for 2019 and paid something in 2020 taxes by entering the info in myself even though I didn't have the form yet.

I now have two 1099-R for 2021-- one for 7,296.80 (the traditional to Roth conversion) and one for 670 (the excess from 2019). Not sure if I did something wrong, but it reduced my refund by thousands of dollars when I entered these. 

Thanks for your help!

[MarilynG1]

Sounds like you don't need to enter the 1099-R for the 2019 Excess Contribution, since you already handled that in your 2020 return.  Just keep it for your records.

I would suggest you delete both 1099-R's from your return and report your non-deductible IRA contributions first before the Roth conversion. 

Click this link for steps on How to Enter a Back-Door Roth Conversion.  

[macuser_22]

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@capntangen wrote:

I'm also confused. 

In Jan 2021, I withdrew my excess roth contributions from 2019 ($670) into a traditional IRA. I also contributed $6000 to a traditional IRA for 2020 and then converted the IRA to my roth that I've had since 2013. 

I paid the $40 fee for 2019 and re-submitted my taxes for 2019 and paid something in 2020 taxes by entering the info in myself even though I didn't have the form yet.

I now have two 1099-R for 2021-- one for 7,296.80 (the traditional to Roth conversion) and one for 670 (the excess from 2019). Not sure if I did something wrong, but it reduced my refund by thousands of dollars when I entered these. 

Thanks for your help!

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When you entered the 2019 Traditional IRA contribution did you specify that it is non deductible which will produce a 2019 8606 form with the contribution on line 1,3 and 14.   Then did you do the same for your 2020 return which would produce a 2020 8606 for with the $6,000 on line 1, the carry forward 2019 $670 on line 2 and the total of both on lines 3 & 14.

For the 2021 conversion you would say that you had a "basis" (after-tax contributions of the last filed 8606 line 14 amount to offset the tax.

Here is how a "backdoor Roth" works:

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor" tax free. [Congress has been talking about changing the tax law to prohibit this but has not yet done so.]

That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

Otherwise the conversion will be partly taxable.

First you must enter your Traditional IRA contributions (if there were 2020 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

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).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2021.     (Usually zero unless you also made a 2020 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2021 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2021, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion

[capntangen]

Sorry for the delay--  I've been trying to wrap my head around it. I recharacterized my 2020 contributions to an IRA (from roth) in 2021 because they weren't allowed to be roth. I did it in 2021, but I already listed everything on my taxes for 2020. So do I need to enter these 1099-Rs or do I ignore them?  The contributions were for 2020, but I did the recharacterization and the conversion (back to Roth) in 2021. Maybe I only need to do the recharacterization? I'm so confused. 

[DaveF1006]

Yes, you will need to report each of the 1099R's you have received both for the recharacterization and conversion since these were done in 2021.

@capntangen

[capntangen]

But I feel like I'm getting hit twice because I already put it into my 2020 taxes and it lowered my refund a LOT for 2021. 

[capntangen]

I'm also getting really confused by all the questions. I've been contributing to my roth since 2008. I withdrew $680 (excess contributions) in 2021 because it was excess in 2019. Now it's asking for how much contribution is still in my roth? So I need to go back and figure out how much I have ever contributed to my roth? 

[DaveF1006]

I know it is a bit confusing but hopefully some of the confusion can be lifted with this answer. 

1. In the 1099R that reported the excess contribution returned, it should list a code P. This will not result in a taxable event but simply reports that the 2021 taxable contribution was returned.
2. If you haven't kept track of your Roth contributions, perhaps your broker may have the information. the reason Turbo Tax is asking for it is that it wishes to generate a correct 8606 for you in the return.
3. According to the IRS, you need Form 8606 to report;

• Nondeductible contributions you made to traditional IRAs.
• Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs.
• Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs.
• Distributions from Roth IRAs.

Since you had a Roth conversion at some point, it wants to make sure all the information is correct so that your Form 8606 is accurate for this year. As far as tracking your Roth contributions, perhaps your broker has the information. if not, you can make an educated guess just to satisfy this portion of the return.

@capntangen