topic 2020 Roth IRA Excessive Contribution in Retirement tax questions

2020 Roth IRA Excessive Contribution

knba713 — Mon, 15 Feb 2021 23:23:05 GMT

I made a contribution of $6000 from my bank account to my Roth IRA on 4/17/2020. But later I found out my Adjusted Gross Income is about $220K (>$206K for joint filers). So I am not eligible for the annual $6000 Roth IRA contribution limit. To avoid the 6% excessive contribution penalty, I took that $6000 out from Roth IRA back to my bank account on 12/28/2020.

Now I received a 1099-R showing I have an early distribution, which counts as my income. According to TurboTax, it increases my Federal Tax Due a lot. I mean this doesn't make sense, right?

Re: 2020 Roth IRA Excessive Contribution

DanaB27 — Tue, 16 Feb 2021 15:19:55 GMT

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. Please ensure that you answer all questions after your entered the 1099-R and click continue on the "Your 1099-R entries" screen.

Open your return
Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R” and enter all your 1099-Rs
Click "Continue" on the "Your 1099-R entries" screen
Answer all the questions and make sure you enter the net contributions prior to 2020 on the "Enter Prior Year Roth IRA Contributions" screen
Answer the remaining question.

You can verify your entry by looking at Form 1040 line 4.

Please be aware to avoid the 6% tax on excess contributions, you must withdraw:

the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
any income earned on the excess contribution.

Only the earnings would be included in your taxable income.

Re: 2020 Roth IRA Excessive Contribution

knba713 — Wed, 17 Feb 2021 01:46:21 GMT

@DanaB27

Thanks for the tip.

I have try a few numbers for this "net contributions prior to 2020 on the Enter Prior Year Roth IRA Contributions screen". Only after I put $6000 in there, I won't get to pay extra tax or penalty. But does this make sense? I mean the $6000 I mistakenly put into my Roth IRA was in 2020, not prior to 2020.

Re: 2020 Roth IRA Excessive Contribution

DanaB27 — Wed, 17 Feb 2021 13:22:19 GMT

Correct the net contributions prior to 2020 on the Enter Prior Year Roth IRA Contributions screen you will need to enter contributions prior to 2020.

What code is inbox 7? Did you tell your bank this was a return of excess contribution plus earnings? For the removal of excess contribution it should be codes 8 and J in your case. Box 1 will have the contribution and earnings and box 2 the earnings. Only the earnings will be taxable.

Re: 2020 Roth IRA Excessive Contribution

knba713 — Thu, 18 Feb 2021 04:05:07 GMT

Code is Box 7 is J only. I guess probably my broker doesn't know it is a withdrawal of an excessive contribution.

Box 2 is 0. So there is no earning.

Re: 2020 Roth IRA Excessive Contribution

DanaB27 — Sun, 21 Feb 2021 18:46:45 GMT

Can you check with with bank if they can correct the 1099-R since it was a return of excess contribution?