Excess traditional IRA contribution converted to Roth, then returned the following year

NorbertD1 — Fri, 26 Mar 2021 06:08:50 GMT

I've read through many threads on handling excess IRA contributions, but couldn't find one that quite matches my scenario. Here's what I did:

1) Made a $6000 traditional IRA contribution for 2020 in April 2020, then converted it to Roth a couple of weeks later

2) Forgetting about #1, I did the same thing again in December 2020 (contribution & conversion)

3) In February 2021 I realized my mistake and filed a "Return of Excess Contribution" form with my bank and had $6000.01 (the contribution + earnings) returned to my checking account.

So the 2019 1099-R I got from my bank shows $12000 in distributions from my traditional IRA. I assume next year I'll get a 2020 1099-R that covers the return of excess, but I don't want to wait and amend my taxes then.

Based on other threads I think I need to do the following:

a) Enter a manual 1099-R with $6000.01 in box 1, $0.01 in box 2a, and codes J & P in box 7. Fill out Form 4852, and select year 2021.

b) In "Deductions & Credits" -> "Retirement and Investments" -> "Traditional and Roth IRA Contributions" I need to indicate that I made an excess contribution of $6000 but this contribution was withdrawn before the tax deadline.

I did (a), but not sure how to do (b). Is this an excess traditional IRA contribution, or Roth IRA contribution? I think the answer is traditional, since I didn't technically make a Roth contribution (rather it was a conversion). But for traditional IRAs the interview only asks about excess contributions in 2019 or earlier, while for Roth IRAs it asks about 2020 or earlier. If I enter it as an excess Roth IRA contribution then it seems I'm paying a large penalty, even though I listed the $6000 as withdrawn before the due date. So I suspect I'm not doing it right.

How to handle this?

Re: Excess traditional IRA contribution converted to Roth, then returned the following year

dmertz — Fri, 26 Mar 2021 12:22:59 GMT

For b), indicate that you contributed $12,000 to a traditional IRA, then indicate that you had $6,000 of that returned. TurboTax will prompt you to prepare and explanation statement where you'll describe everything as you did here.

Re: Excess traditional IRA contribution converted to Roth, then returned the following year

NorbertD1 — Sat, 27 Mar 2021 07:00:05 GMT

Thanks dmertz, that seems to work. I guess I had failed to include the excess contribution in (b) before, so it was never prompting me to include any amount returned before the tax due date. Once I listed the full $12K it said I had a penalty, and allowed me to note the returned contribution.

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Excess traditional IRA contribution converted to Roth, then returned the following year

Re: Excess traditional IRA contribution converted to Roth, then returned the following year

Re: Excess traditional IRA contribution converted to Roth, then returned the following year