Withdrawal of Roth IRA Contribution in same year

[345234]

I under the age of 59 and have had a Roth IRA for under 5 years.  

Last year in June 2018 I contributed $5500 (the maximum allowed for me) to my Roth IRA.  Almost immediately (in July 2018) took $3000 of that back out.  I am wondering if I am able to recontribute that $3000 right now before I file my taxes.   In other words, as it stands right now, I am wondering if my contribution for 2018 are currently $2500 or $5500.  

I believe I currently stand at $2500 in contribution for 2018 and that I can deposit another $3000, but I was told something different by Fidelity.  I believe this because of this passage from the IRS: 

If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.

[macuser_22]

It depends on how you took it out.

If you properly told the IRA custodian that you wanted a "return of contribution" and they also returned any earnings attributed to the contribution while in the IRA, then they will issue a 1099-R next year with a code J8 showing the return of contribution as if it never happened and you can still contribute the maximum that you are eligible to contribute.

If you simply took a normal distribution, then the IRA custodian will issue a 1099-R with a code J.   Your contribution was not removed so you cannot contribute more.

[345234]

I do have a 1099-R with a code J, so that means that I took a distribution rather than a "returned contribution".

[macuser_22]

Correct.   When you enter the 1099-R, it will not be a taxable distribution since you are withdrawing your previous contribution, but you cannot make another 2018 contribution.

Be sure to enter the 2018 Roth contribution into the IRA contribution interview so that it will be applies to the distribution.

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

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

=========

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 2018 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.

[rhonda1215patton]

I put $7500 in I got back like $6800 give or take of my own money. I had trouble and needed my money back I got back less than I put in and now I am being taxed on my own money. Saying in is income. I didn't know everything was going to go up I had surgery on my ears car trouble and dental trouble 

[MichaelG81]

In general, yes. You can take it out Tax free the amount you put in a Roth IRA, but there's a penalty of 10% if you take it out before 59 1/2. Plus, any earnings/interest you make could be taxed even if withheld from your investment institution for withdrawing early. Also, excess contributions penalties.

Example:

I put in 10,000 into a Roth IRA and have qualifying income (the limit is $6,000; unless you are over 50 it's $7,000 to a Roth IRA). I take out $1,000 before I am 59 1/2 at tax time. Unless an exception applies from the interview questions it'll tax you for excess contributions, early withdrawal, and possible institution earnings like interest earned. The excess contribution, it sounds like, has already been removed you put in year 2022; the tax law allows until April 18, 2023, for the 2022 tax year to withdraw any earnings in addition to the principal amount associated with the excess contribution. If you have medical expenses that exceed 7.5% of your AGI, you can take the excess of (7.5%) and enter the amount as an exception. If you are permanently disabled as defined by the IRS this could also be an exception, among others. Once you enter the form, the interview will take you through the questions and TurboTax will see how we can save you the most money, with things like higher education withdrawals and more from your Roth IRA trying to save you on things like early withdrawals for qualified expenses and deductions. Be sure to have receipts or proof of expenses when entering information for your records and recordkeeping.

@rhonda1215patton

[Anonymous]

If you contribute and then do a removal of the contribution in the following year (but before filing), then you have to report earnings. There is no penalty, because it's as though the contribution never even happened. The earnings are actually handled in the "other income" category, since you will not have the 1099-R yet. It looks like this (example):

2022 IRA Contributions Returned to You in 2023

Special rules apply to amounts that you contribute to your traditional or Roth IRA and that are
returned to you in 2023. These amounts may be reported to you on a 2023 Form 1099-R that has a
code "P" in box 7.

What contributions qualify?

The IRA contribution must meet all of these requirements:
• The contribution was made in 2022.
• The contribution was returned to you in 2023, with any related earnings or less any loss, by the
due date (including extensions) of your 2022 tax return.
• You didn't take a deduction for the contribution.

What contributions don't qualify?
• IRA contributions that were returned on a 2022 Form 1099-R with a code "P" in box 7 don't
qualify

[fanfare]

@Anonymous 

It's not done that way.

positive income from your excess contribution is not other income.

it is IRA income included in line 4b.

If you are under age 59 1/2 there is also a 10% penalty for an early withdrawal.

[Anonymous]

Incorrect. It is a removal of contribution in the same tax year. Per IRS guidelines, it is as though you never even made the contrition. The quote I gave is direct from tax software, which will kindly redirect you to the other income category if you attempt to enter it in as an IRA distribution without a 1099-R.

[fanfare]

I don't know what software you refer to, but

" if you attempt to enter it in as an IRA distribution without a 1099-R."

you are entering the "earnings allocable to the excess" incorrectly.

" it is as though you never even made the contrition."

CONDITIONALLY, that is ,you must put the positive earnings on Line 4b

@Anonymous