Excess Roth Contribution - Net Income Attributable is Negative

[apunke]

I made an excess Roth IRA contribution of $1790. After talking with my financial company, they thought it would be best for me to withdrawal the excess, since it's prior to the tax deadline to avoid paying 6% penalty. When they calculated the net income attributable (NIA), it was negative meaning I really only needed to withdraw $1667. However, when I entered this information on Turbo Tax noting $6000/year contribution but $1667 withdrawal, they still say that I owe a penalty for excess contribution and have to pay a fee on the difference between those two numbers ($1790 minus $1667 - avery small amount but still concerning me that something isn't being translated that I don't actually need to withdraw that full excess amount). I believe I need to complete a 1099-R to avoid having to amend taxes once I actually receive this form next year, but I'm not sure what values to enter with the odd situation of having a negative NIA? Also, will completing a 1099-R reconcile the numbers, so TurboTax understands that I shouldn't have to pay a penalty on the difference between those two numbers?

[DanaB27 · Accepted solution]

 Please enter the $1,790 as withdrawn on the penalty screen. You withdrew the whole contribution but had a loss.

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options: 

• You can wait until you receive the 1099-R  2022 in 2023 and amend your 2021 return or
• You can report it now in your 2021 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2022 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything in 2022 tax return but the withholding will be applied to 2022.

To create a 1099-R in your 2021 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution minus loss)
7. Box 2a enter $0
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.

[apunke]

Thank you! Just to make sure I understand the codes to enter on 1099-R. I see that Code J is "Early Distribution of Roth IRA" and Code P is "Excess contributions plus earnings/excess deferrals taxable in 2020". Code J makes sense to me, but Code P confuses me with the "2020" part...since it was in 2021? Can you explain that? I also saw Code 8 "Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021". Is this ever selected in this case?

[DanaB27]

Yes, code P will say in the drop-down menu "Return of contribution taxable in 2020" but you can ignore that since the follow-up question where you select that it is a 2022 Form 1099-R will tell TurboTax that it will be taxable in 2021.

The code P on a 2022 Form 1099-R will mean "Return of contribution taxable in 2021" which is why TurboTax will ask the follow-up question what year is on the form.

[jr_ece]

@DanaB27So does TurboTax ultimately uses the 2021 question to decide to include this 1099-R with the tax return? Also, is all of the instructions ultimately creating just form 1099-R with P/J codes or does it create Form 5329 and/or Form 8606?

[DanaB27]

Yes, the follow-up question will let TurboTax know if the Form 1099-R with codes PJ belongs on your return. By creating Form 1099-R it will add the Form 1099-R, make the correct entries on line 4 of Form 1040 and create Form 5329.

@jr_ece