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?
Please enter the $1,790 as withdrawn on the penalty screen. You withdrew the whole contribution but had a loss.
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:
To create a 1099-R in your 2021 return please follow the steps below:
Please enter the $1,790 as withdrawn on the penalty screen. You withdrew the whole contribution but had a loss.
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:
To create a 1099-R in your 2021 return please follow the steps below:
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?
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.
@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?
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.