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

[macuser_22]

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@Nitin_Texas wrote:

Hi,

I have similar question.

- I contributed $6000 to my Roth IRA for 2019.

- I withdrew $6000 (it was less amount since I had loss on it) BEFORE the tax due date in 2020.

- I didn’t report the contribution and withdrawal in my 2019 tax return.

- In 2020 I received 1099R from the financial institution which I  reported in my 2020 return.

- when filing 2020 returns it says you may have to amend your 2019 tax return.

What do I do now? I’d really appreciate any help and guidance on this

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If box 2a is zero, I would not do anything.   It would have no effect on your 2019 tax return.

[Jimbopfann]

I recently found out I made a contribution to my wife's ROTH IRA in the amount of $300.00, which resulted in an overpayment to the authorized limit and also resulted in dividends of $33.82 but I had already filed my 2020 tax return.  I processed the removal of excess with my financial brokerage company.   My brokerage company informed me they would send a 1099 R reflecting the removal but not until January 2022.  Do I need to report the dividends received now and pay any taxes owed or do I need to wait until I receive the 1099 R from my brokerage company?

[KREC]

I am removing an excess contribution I made on a Roth IRA in 2018. I’ve already paid the 6% in 2018, 2019, and 2020 using the 5329 on my tax filing. I will not need to pay the 6% for 2021 since I am removing the excess before the end of the year. I am only removing the excess contribution and no earnings so I should have no tax or penalty due. Here is my question, When the financial firm issues the 1099R what code will they use to show the return of the excess?

[macuser_22]

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@KREC wrote:

I am removing an excess contribution I made on a Roth IRA in 2018. I’ve already paid the 6% in 2018, 2019, and 2020 using the 5329 on my tax filing. I will not need to pay the 6% for 2021 since I am removing the excess before the end of the year. I am only removing the excess contribution and no earnings so I should have no tax or penalty due. Here is my question, When the financial firm issues the 1099R what code will they use to show the return of the excess?

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It should have a code J in box 7 since it can only be removed now as a normal distribution.

[KREC]

Thanks. So will entering this in turbo tax when I do my 2021 taxes be pretty straightforward? 

[macuser_22]

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@KREC wrote:

Thanks. So will entering this in turbo tax when I do my 2021 taxes be pretty straightforward? 

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Yes.

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.

[KREC]

The 2018 contribution was $2243. $133 was allowed and so I had an overcontribution of $2110. In 2018 I paid the 6% excise tax on the 5329. In 2019 I absorbed $450 paid the 6% again and so

now the overcontribution was reduced to $1660. In 2020

no contribution was allowed so I was hit with and paid 6%. I am now removing the excess contribution in 2021, I assume I only need to

remove the $1660

since portions of the original overcontribution were absorbed.

[macuser_22]

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@KREC wrote:

The 2018 contribution was $2243. $133 was allowed and so I had an overcontribution of $2110. In 2018 I paid the 6% excise tax on the 5329. In 2019 I absorbed $450 paid the 6% again and so

now the overcontribution was reduced to $1660. In 2020

no contribution was allowed so I was hit with and paid 6%. I am now removing the excess contribution in 2021, I assume I only need to

remove the $1660

since portions of the original overcontribution were absorbed.

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Paying the penalty does not reduce the excess.    The 6% penalty on the original excess amount, repeats each year until that amount is removed.   If your 2018 excess was $2,110, then that is what must be removed before Dec 31, 2021 to avoid another $126,60 (6% of $2,110) penalty which is the amount that should have been paid for each year - 2018, 2019 and 2020.

[KREC]

I’m confused. In 2019 I was allowed to contribute $450 for the year so instead of contributing, $450 of the $2110 from the previous year’s excess was carried over (absorbed) leaving the excess as $1660. In 2018 the 6% penalty was paid on the $2110; in 2019 on the $1660; and again in 2020 on the $1660 (I was unable to carryover any excess into 2020 as my MAGI didn’t allow for any contributions that year). So my excess that is still in the account is $1660.

[macuser_22]

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@KREC wrote:

I’m confused. In 2019 I was allowed to contribute $450 for the year so instead of contributing, $450 of the $2110 from the previous year’s excess was carried over (absorbed) leaving the excess as $1660. In 2018 the 6% penalty was paid on the $2110; in 2019 on the $1660; and again in 2020 on the $1660 (I was unable to carryover any excess into 2020 as my MAGI didn’t allow for any contributions that year). So my excess that is still in the account is $1660.

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Your post was not clear that instead of removing the excess you applied it to the current years allowable contribution which *is* removing the excess (it is not absorbed it was removed by applying it to the current years allowable contribution ), so yes the carry forward excess would be reduced by the amount of the allowable new contribution

[KREC]

Thanks. Sorry for the confusion with the terminology. I will remove the remaining $1660 before 31 December 2021 to avoid an additional 6% penalty. Thanks for the assistance.

[KREC]

Thanks. Sorry for the confusion with the terminology. I will remove the remaining $1660 before 31 December 2021 to avoid an additional 6% penalty. Thanks for the assistance.

[KREC]

I have a few additional questions. As previously mentioned I filed the 2018, 2019, and 2020  5329 forms each year with each return and paid the 6% penalty each year, so

As I understand things:

I take distribution on the remaining excess of $1660 before the end of 2021 (no earnings), financial firm should issue a 1099R with code J in box 7 and I will need to fill out a 5329 with my 2021 return which will zero out any further 6% penalties. No other taxes or penalties due.

My financial firm stated the following which I don’t quite understand since this is a Roth not a Traditional IRA:

1. The excess contribution being withdrawn cannot be deducted or reported as a contribution for the year made. This may necessitate amending a tax return.

2. If the total contribution made to an IRA for the year is more than the maximum contribution limit in effect for the year the excess amount is generally includible in gross income.

Are there any other actions I need to take with regard to prior tax returns? As mentioned before I have already filed 5329’s and paid 6% each year.

Thanks

[macuser_22]

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@KREC wrote:

I have a few additional questions. As previously mentioned I filed the 2018, 2019, and 2020  5329 forms each year with each return and paid the 6% penalty each year, so

As I understand things:

I take distribution on the remaining excess of $1660 before the end of 2021 (no earnings), financial firm should issue a 1099R with code J in box 7 and I will need to fill out a 5329 with my 2021 return which will zero out any further 6% penalties. No other taxes or penalties due.

My financial firm stated the following which I don’t quite understand since this is a Roth not a Traditional IRA:

1. The excess contribution being withdrawn cannot be deducted or reported as a contribution for the year made. This may necessitate amending a tax return.

2. If the total contribution made to an IRA for the year is more than the maximum contribution limit in effect for the year the excess amount is generally includible in gross income.

Are there any other actions I need to take with regard to prior tax returns? As mentioned before I have already filed 5329’s and paid 6% each year.

Thanks

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If the remaining excess is removed before the end of 2021 then no 2021 5329 is filed since there is no excess.

#1)  Roth contributions are never deductible and are not reported on a tax return at all. 

#2)  Makes no sense.  As you already know and excess is simply removed and if not removed then it is subject to the 6% penalty.    When it is finally removed then it is  not taxable because you are just removing your own prior contribution which is never included in income.    You already paid the 6% penalty so the earnings do not get removed which would be included in income if timely removed (by the time limit) which you did not do.

Since you filed prior years 5329 form then no other action is needed.

[KREC]

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