Will turbotax prompt me if I made an excess Roth IRA contribution (2018 tax year) due to being over the AGI limit? Will it allow for that excess to be corrected?

[htims_tax]

I may have made excess Roth IRA contributions to both mine and spousal IRAs due to income limits being higher than expected in 2018.

Will turbotax tell me if I did, and will it allow me to correct it before finalizing/filing the taxes.

[frostedj8]

if there were losses accrued with the excess ROTH contribution, how do you correct for that?  I withdrew the excess contribution minus losses but when I enter the values into turbotax, it shows that my withdrawal was less than the excess contribution, resulting in a penalty.  

[macuser_22]

@frostedj8 - in the IRA contribution section  enter the amount of the original contribution  not accounting for any gain or loss.

If you have a 1099-R with a code 8J or PJ then in the explanation statement say the amount removed was minus $xxx loss.

[frostedj8]

if I haven't received my 1099 R yet?

[macuser_22 · Accepted solution]

Yes it will if you first enter all of your income and adding the Roth contribution is the last thing that you do.

"Will it allow for that excess to be corrected?"  yes, if you, in fact have the excess returned as a "return of contributions" from the financial institution that has your IRA.    You tell TurboTax that the excess has been removed so a penalty is not applied and the excess does not carry forward.   You will also receive a 1099-R from the account trustee for the year that the excess was removed.

[htims_tax]

So how's this work if my excess is 2018 tax year, returned say in March '19. Am I going to get penalized for 2018, and then it'll be corrected in 2019??? Lost on how that process works.

[macuser_22]

The Roth contribution interview will tell you that you have a penalty and ask how much of the excess was removed before the due date of the tax return, if it will be removed in March which is before the due date, then enter that amount of excess and no penalty will be applied.

The Roth trustee will need to return n ot only the excess but any earnings attributed to the excess while it was in the account and issue a 2019 1099-R in Jan of 2020.    The earnings will be taxable income (also subject to a 10% early distribution penalty if you are under age 59 1/2).    The 2019  1099-R should have a code "PJ" in box 7 meaning that it is a return of contribution taxable in 2018 since it was a 2018 contributions (the earnings are taxable in the year the contribution was made, not the year returned),  That means that you would need to amend the 2018 tax return to add the 1099-R that you will not receive until 2020.

[macuser_22]

In other words, it is a 2 step process:  1) indicate in the Roth contribution interview that the excess was removed to prevent the 6% excess contribution penalty that repeats every year until the excess is removed, and 2) Enter the 2019 1099-R to report and pay any tax due on the earnings attributed to the excess (of course there might not be any earnings in which case box 2a on the 1099-R would be zero, otherwise box 2a would be the taxable earnings.)

[htims_tax]

@macuser_22 I think I got it now - many thanks!