Excess IRA Contribution
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TugBoatBaby
Returning Member

Excess IRA Contribution

When I prepared my 2019 Taxes using Turbo Tax Premier, it turns out that I made an excess contribution in the amount of $89.00 to my IRA for 2019.   I indicated that I would withdraw this excess contribution before April 15, 2020.   My IRA is held at a brokerage company.  When I requested the brokerage company to distribute $89.00 excess contribution, (I had $89.16  cash in the account), the brokerage firm emailed me a confirmation of the $89.00 Excess Removal (which was deposited to my external bank account), but my bank account indicates a transfer of only $80.01. When I called my brokerage account customer service, they told me that the IRS requires them to calculate the withdrawal amount based on the total value of the account for purposes of assessing a gain or loss on the excess contribution, even though I had sufficient cash in the brokerage account to cover the Excess Withdrawal (not sure I  understand this, since I had sufficient cash in the account to cover the distribution).   My question is:  since the actual cash transfer from my brokerage account to my bank account is only $80.01, have I in fact removed the 2019 Excess Contribution of $89.00, or do I need to withdraw additional funds from my IRA to fully cover the $89.00 2019 Excess Contribution?  Thank You!

6 Replies
macuser_22
Level 15

Excess IRA Contribution

That would appear that there was a loss and no earnings.   Ask the financial institution what code they will put in box 7 on the 1099-R that they will issue and what will be in box 1 and 2a.  A 2020 1099-R for a return of 2019 contribution should have a code "P" of a Traditional IRA or a code "JP" if a Roth.    Box 1 should have the amount received and box 2a the earnings of any or a negative number if a loss.

 

 

The IRS says in Pub 590A

 

Contributions Returned Before Due Date of Return

If you made IRA contributions in 2019, you can withdraw them tax free by the due date of your return. If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. You can do this if, for each contribution you withdraw, both of the following conditions apply.

  • You didn’t take a deduction for the contribution.

  • You withdraw any interest or other income earned on the contribution. You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income earned on the contribution may be a negative amount.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
TugBoatBaby
Returning Member

Excess IRA Contribution

So if  I understand IRS Pub 590A correctly, the condition "You withdraw any interest or other income earned on the contribution.  You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn." to mean that I have withdrawn my total  Excess IRA Contribution for 2019, because the value of the Excess Contribution decreased at the time it was withdrawn?

 

macuser_22
Level 15

Excess IRA Contribution


@TugBoatBaby wrote:

So if  I understand IRS Pub 590A correctly, the condition "You withdraw any interest or other income earned on the contribution.  You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn." to mean that I have withdrawn my total  Excess IRA Contribution for 2019, because the value of the Excess Contribution decreased at the time it was withdrawn?

 


For example if the excess contribution was $100 and there was a $5 loss on that $100 then  the 1099-R box 1 would be 95  and box 2a -5 to account for the missing $5.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Lynne2929
Level 1

Excess IRA Contribution

I am in the same situation, over contributed to my Roth IRA account in 2019 for 2019.  Realized it in 2020 and requested my broker to remove the excess $40 Roth IRA Contribution.  There were Negative Earnings/loss  on the excess contribution.   The net excess amount $33.78 was deposited into my non retirement account in 2020.  My Question is: Do I need to report the return of the $33.78 on the 2019 tax return as a Gross Distribution (line 1) or will it be included in the 2020 return, when I get the 1099R?  

Also, you state in the earlier reply that the negative earnings $-6.22 should go into line 2a.  Turbo Tax keeps asking me to check this entry, is it truly a negative taxable amount or will I be paying $0 taxes on the loss amount?

Thank you!

macuser_22
Level 15

Excess IRA Contribution


@Lynne2929 wrote:

I am in the same situation, over contributed to my Roth IRA account in 2019 for 2019.  Realized it in 2020 and requested my broker to remove the excess $40 Roth IRA Contribution.  There were Negative Earnings/loss  on the excess contribution.   The net excess amount $33.78 was deposited into my non retirement account in 2020.  My Question is: Do I need to report the return of the $33.78 on the 2019 tax return as a Gross Distribution (line 1) or will it be included in the 2020 return, when I get the 1099R?  

Also, you state in the earlier reply that the negative earnings $-6.22 should go into line 2a.  Turbo Tax keeps asking me to check this entry, is it truly a negative taxable amount or will I be paying $0 taxes on the loss amount?

Thank you!


If there were no taxable taxable earnings reported in box 2a then there is nothing to report in the 2019 tax return at all.   A return of Roth after-tax contributions is not taxable or reportable, only the earnings are.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Lynne2929
Level 1

Excess IRA Contribution

Thank you!

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