Excess Roth Contribution

[martymoose]

Made a contribution for 2020, turned out to be excess.  Withdrawn in 2021.  Received 1099-R in 2022 showing 2021 1099-R with gross distribution and taxable amount.  TT says need to amend 2020 return.  In amending 2020 return when I enter the 1099-R with codes J and P, P is:  Return is taxable in 2019!!  Do I leave P off the box 7 codes or ????

[DanaB27 · Accepted solution]

Yes, you will use code P when you amend your 2020 return. Enter the 1099-R as shown on the form with J and P. Ignore that it says taxable in 2019 in the dropdown. When you continue TurboTax will ask what year is on your Form 1099-R. Select 2021 and TurboTax will know that code P means taxable in 2020.

[martymoose]

The steps in the reply worked perfectly!  Thanks!

Follow Up Question,,,,,,

Rounding off numbers for simplicity.

Contributed 7000 in May 13, 2020-withdrew excess of 7000 plus earnings of 3000 =$10000 on April 20, 2021:  $3000 taxable.  [tax day extended to May 17 for 2021]

While entering answers to TT questions, showed I would owe extra tax bill of $300 (10%). Is this a penalty?  I thought I was withdrawing in time to avoid any penalty.  At completion- I owe $300 + $700 federal+125 to state =$1125 tax on $3000.  A 38% tax! Brutal!  Does this all sound correct?

[DanaB27]

Yes, if you are under age 59½ then the 10% penalty will apply. The income tax and penalty only apply to the earnings of $3,000. The excess contribution of $7,000 won't be taxable.

If you do not remove the excess contribution then you would have to pay a 6% penalty each year as long as the excess is left in the account.

To verify, your 1099-R has the total distribution in box 1 (excess contribution plus earnings) and the earnings in box 2a. 

Please see What happens if I made an excess Roth IRA contribution for additional information.

[Edited 1/27/2022 | 8:54am PST]