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Level 1

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

I'm a 25 year-old who has a Roth IRA with Fidelity.

In 2016 my grandmother gave me a gift of money that I used to contribute $5,500 to my Roth IRA. However, my earned income for 2016 ended up only being about $2,100.

I worked with Fidelity to have my excess contribution of  $3,400 returned.

Fidelity officially calculated that my excess contributions had earnings of $1,413. I was told that I will have to pay a 10% penalty on these earnings.

I am trying to amend my tax returns before October 16, 2017 to avoid a 6% penalty on everything (principle & interest) until I fix it.

In TurboTax Deluxe online, when I go to amend my 2016 returns, I go to Federal Taxes > Deductions & Credits > Traditional and Roth IRA Contributions. I input my original contribution of $5,500 and was told I contribution too much. Then I input my $3,400 return of excess. It brought me to a summary page showing my corrected net contribution for 2016: $2,100.

Everything sounds great... except one problem: I was never asked about the earnings on my excess contribution.

If I'm supposed to pay a 10% penalty on my $1,413 of earnings, where and how to I do this? Please help! Time is running out :(

Thank you!

1 Best answer

Accepted Solutions
Level 20

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

Only the return of contribution needs to be completed by October 16, 2017 to avoid the 6% excess contribution penalty.  The amendment can be completed anytime before the 3-year statute of limitations expires.  It appears that you have already taken the steps necessary to obtain the return of excess contribution.

The earnings are reported by entering the Form 1099-R that reports the return of contribution.  With the excess contribution having been made in 2016 but returned in 2017, this will be reported on a 2017 Form 1099-R showing $4,813 in box 1, $1,413 in box 2a and code JP in box 7.  When amending your tax return in 2016 TurboTax, you must enter this Form 1099-R and in the follow-up questions indicate that it is a 2017 Form 1099-R.  This will cause TurboTax to include the $1,413 on line 15b of Form 1040 (resulting in a change in AGI shown on line 1 of Form 1040X) and to calculate the $143 early-distribution penalty on Form 5329 (appearing on Form 1040 line 59 and as a change to Other taxes on line 10 of Form 1040X.  If the return of contribution was made after April 18, 2017, you must include a statement on your amendment that it is "Filed pursuant to section 301.9100-2."

8 Replies
Level 20

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

Only the return of contribution needs to be completed by October 16, 2017 to avoid the 6% excess contribution penalty.  The amendment can be completed anytime before the 3-year statute of limitations expires.  It appears that you have already taken the steps necessary to obtain the return of excess contribution.

The earnings are reported by entering the Form 1099-R that reports the return of contribution.  With the excess contribution having been made in 2016 but returned in 2017, this will be reported on a 2017 Form 1099-R showing $4,813 in box 1, $1,413 in box 2a and code JP in box 7.  When amending your tax return in 2016 TurboTax, you must enter this Form 1099-R and in the follow-up questions indicate that it is a 2017 Form 1099-R.  This will cause TurboTax to include the $1,413 on line 15b of Form 1040 (resulting in a change in AGI shown on line 1 of Form 1040X) and to calculate the $143 early-distribution penalty on Form 5329 (appearing on Form 1040 line 59 and as a change to Other taxes on line 10 of Form 1040X.  If the return of contribution was made after April 18, 2017, you must include a statement on your amendment that it is "Filed pursuant to section 301.9100-2."

Level 20

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

You'll receive the actual 2017 Form 1099-R near the end of January 2018.  If you do the amendment before then, you'll need to enter the Form 1099-R into 2016 TurboTax as if you have already received it.
Level 1

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

Thank you so much! Two more questions (for now):

QUESTION 1:

You said to use the code "JP" in box 7 but "P" says "Return of contribution taxable in 2015." Are you sure I don't use the code "J8"? "8" is "Return of contribution taxable in 2016"

QUESTION 2:

And just to clarify, can I leave blank the rest of the fields? Those fields consist of:

2b - Check Boxes:
- Taxable amount not determined
- Total distribution
3 - Capital Gain
4 - Federal Income Tax Withheld
5 - Employee Contributions / Designated Roth Contributions or Insurance Premiums
6 - Net Unrealized Appreciation
7 - The IRA/SEP/SIMPLE box is checked on my copy of the 1099-R
8 - Other
8 - Percent
9a - Your Percentage of Total Distribution
9b - Total Employee Contributions
10 - Amount Allocable to IRR Within 5 Years
11 - First Year of Designated Roth Contribution (4 digits)
- Check Box: FATCA filing requirement box is checked.
State Information
- Boxes 12-14
- Check Box: I have info in boxes 15-17
Level 20

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

Regarding code P, code P *actually* means taxable in the year prior to the year of the Form 1099-R.  TurboTax's dropdown text assumes that you are entering a 2016 Form 1099-R, but you are actually entering a 2017 Form 1099-R.  The result would be the same if your entered it as a *2016* code J8 Form 1099-R, but that's not what fidelity will be sending you (unless you performed the Roth contribution and the return of excess contribution both in 2016).

Yes, everything else stays blank.  Since you can't e-file the amendment anyway, you can leave much of the payer information blank as well, but if you want to get rid of the errors that TurboTax flags, you can enter made-up payer information.  With no tax withholding (make sure that no taxes are withheld from the distribution, otherwise the reporting becomes unnecessarily complicated), no details (other than the box 1 and box 2a dollar amounts) from the Form 1099-R are included in your amendment.
Level 20

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

What Form 1099-R do you have that has the IRA/SEP/SIMPLE box marked?  Fidelity would never mark that box for a distribution from a Roth IRA.
Level 1

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

Thank you so much for the clarity!

Sorry for the confusion about 11. I was literally quoting the check box asking if "The IRA/SEP/SIMPLE box is checked on my copy of the 1099-R." I will leave this unchecked to convey that the IRA/SEP/SIMPLE box is NOT checked on my copy of the 1099-R (whatever that means).

So I have moved on from this part of the form and got to a step that says:

"Explain the Return of Contribution. You told us you received a return of an IRA contribution before April 18, 2017. Explain here the details of the return of contribution."

^^Is this what you were referring to when you said, "If the return of contribution was made after April 18, 2017, you must include a statement on your amendment that it is 'Filed pursuant to section 301.9100-2.'?"

To be literal, the return of contribution was made to me after April 18, 2017, but before October 16, 217.

Should I include that sentence you sent me?

Thanks!
Level 20

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

TurboTax's prompt for the explanation statement is misleading by assuming that the individual has obtained the return of contribution by the *regular* filing date for the 2016 tax return.  It does not account for the fact that a return of contribution is permissible after April 18, 2017, but no later than October 16, 2017, if you either filed your 2016 tax return or you requested a filing extension by April 18, 2017.

From what you have said, it appears to me that you filed your 2016 tax return by April 18, 2017 and obtained, or will obtain, the return of contribution sometime between April 18, 2017 and October 16, 2017.  In that case, you are taking advantage of section 301.9100-2 of the tax code to permit the return of contribution in that timeframe and to amend your tax return to report that return of contribution.  So yes, include 'Filed pursuant to section 301.9100-2' on your Form 1040X
Level 1

When amending my 2016 returns, how do I report the EARNINGS of an excess Roth IRA contribution?

Done! Thank you so much. I couldn't have done it without you, whoever you are.