1099-R Box 7 code correction of excess contribution Roth IRA

[tdo061803]

Hi 

I have a Roth IRA account and have made excess contributions to it between year 2013 - 2018. 

Last June I file an excess contribution removal form with my custodian and removed all the excess contributions and paid a penalty to IRA.

This year I got a 1099-R for year 2020 with code J - early distribution.

With this code I am going to pay tax on this amount. 

My custodian explained this is the correct code because I withdrew money from Roth IRA before age 59.5.

I understand when one makes a legit contribution and takes it out of Roth IRA early, it should be taxed.

In my case, the amount is an excess contribution that shouldn't have been there in the first place. Taking it out is an act of correction.

Is it really considered as an early distribution(Code J) for my situation?

[macuser_22 · Accepted solution]

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@tdo061803 wrote:

Hi 

I have a Roth IRA account and have made excess contributions to it between year 2013 - 2018. 

Last June I file an excess contribution removal form with my custodian and removed all the excess contributions and paid a penalty to IRA.

This year I got a 1099-R for year 2020 with code J - early distribution.

With this code I am going to pay tax on this amount. 

My custodian explained this is the correct code because I withdrew money from Roth IRA before age 59.5.

I understand when one makes a legit contribution and takes it out of Roth IRA early, it should be taxed.

In my case, the amount is an excess contribution that shouldn't have been there in the first place. Taking it out is an act of correction.

Is it really considered as an early distribution(Code J) for my situation?

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Yes it is.   However, withdrawing your own contribution is not taxable.

You can always withdraw your own Roth contributions tax and penalty free.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

One of the followup questions will ask for your prior year** contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.

Note: **Prior year - any current year Roth contributions should be entered into the IRA contributions section. They will not show up in the prior years contributions but will be accounted for on the 8606 form that calculates the taxable amount.

[tdo061803]

Thank you for helping again, @macuser_22 

[macuser_22]

If you have TurboTax Live then you are paying extra for phone support - you should use it.