topic Excess Roth Contribution in Deductions & credits

Excess Roth Contribution

martymoose — Wed, 26 Jan 2022 20:24:34 GMT

Made a contribution for 2020, turned out to be excess. Withdrawn in 2021. Received 1099-R in 2022 showing 2021 1099-R with gross distribution and taxable amount. TT says need to amend 2020 return. In amending 2020 return when I enter the 1099-R with codes J and P, P is: Return is taxable in 2019!! Do I leave P off the box 7 codes or ????

Re: Excess Roth Contribution

DanaB27 — Wed, 26 Jan 2022 20:41:57 GMT

Yes, you will use code P when you amend your 2020 return. Enter the 1099-R as shown on the form with J and P. Ignore that it says taxable in 2019 in the dropdown. When you continue TurboTax will ask what year is on your Form 1099-R. Select 2021 and TurboTax will know that code P means taxable in 2020.

Re: Excess Roth Contribution

martymoose — Thu, 27 Jan 2022 16:33:26 GMT

The steps in the reply worked perfectly! Thanks!

Follow Up Question,,,,,,

Rounding off numbers for simplicity.

Contributed 7000 in May 13, 2020-withdrew excess of 7000 plus earnings of 3000 =$10000 on April 20, 2021: $3000 taxable. [tax day extended to May 17 for 2021]

While entering answers to TT questions, showed I would owe extra tax bill of $300 (10%). Is this a penalty? I thought I was withdrawing in time to avoid any penalty. At completion- I owe $300 + $700 federal+125 to state =$1125 tax on $3000. A 38% tax! Brutal! Does this all sound correct?

Re: Excess Roth Contribution

DanaB27 — Thu, 27 Jan 2022 16:58:04 GMT

Yes, if you are under age 59½ then the 10% penalty will apply. The income tax and penalty only apply to the earnings of $3,000. The excess contribution of $7,000 won't be taxable.

If you do not remove the excess contribution then you would have to pay a 6% penalty each year as long as the excess is left in the account.

To verify, your 1099-R has the total distribution in box 1 (excess contribution plus earnings) and the earnings in box 2a.

Please see What happens if I made an excess Roth IRA contribution for additional information.

[Edited 1/27/2022 | 8:54am PST]