2018 Excess Roth IRA contribution

[wxbeaz]

Deposited to Roth IRA in 2018, while doing my taxes in turbotax it was determined that this deposit was an excess contribution. I contacted my financial institution and they calculated gain and returned gain and contribution, noting that I will receive a 1099-R in 2019.

In turbotax do I enter the 2018 contribution in the Roth IRA contribution section even though it has been returned to me?  When I enter it as an excess I am assessed with a 6% penalty. 

[Critter]

If you had the excess returned to you prior to 4/15 then you will indicate that in the program and the excess will not be penalized.

[macuser_22]

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@wxbeaz wrote:

In turbotax do I enter the 2018 contribution in the Roth IRA contribution section even though it has been returned to me?  When I enter it as an excess I am assessed with a 6% penalty. 

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You actually have until the extended due date of the 2018 return (Oct 15, 2019) if you filed the 2018 return on time or filed a timely extension.

You should receive a 2019 1099-R with a code "JP" in box 7 by Jan. 31, 2020.   That 1099-R must be entered on an amended 2018 tax return. 

There is no reason to amend prior to receiving the actual 1099-R as you have 3 years to amend and amending without the actual 1099-R might lead to errors that would require amending the amended return which is a messy procedure since amended returns can take 4 months or longer to process.

You would enter the 1099-R with the total distribution in box 1 (the contribution plus the earnings),

The earnings in box 2a,

Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2017 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2019 1099-R.

After the 1099-R summary screen press continue.

If you are over 59 1/2 then on the "Lets see if we can lower your tax bill" enter the box 2a amount in the "Another Reason" box to eliminate the 10% early withdrawal penalty on the earnings.

The box 2a earnings will be taxable income reported on line 4b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form that will be reported on line 59 on the 1040 Schedule 4 form.

[orbops]

For my situation, the only difference is that my contribution that was returned to me from my brokerage resulted in a loss with no excess earnings, so the amount withdrawn is less than the original contribution. Since my 1099-R shows a distribution less than my original contribution, TurboTax is saying I owe taxes equivalent to the loss I incurred. Why is that loss showing up in TurboTax as taxes owed? According to the IRS website:

To avoid the excess contributions tax:

• withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• withdraw any income earned on the excess contribution.

I met the first item, and I had no income earned due to the loss.

[JohnB5677]

The dollar amount that you received back had to equal what you put in plus any gain.  You did not have a gain, you had a loss, but you still had to withdraw the original amount of your contribution.  The loss that you had will carry forward within the account until you start to take distributions.

[orbops]

I checked with my brokerage (Vanguard), and they stated that if the amount of the original 2018 contribution had incurred a loss at the date of the withdrawal in 2019, the withdrawal amount will not be equal to the original contribution amount and will be lower.

[macuser_22]

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@orbops wrote:

I checked with my brokerage (Vanguard), and they stated that if the amount of the original 2018 contribution had incurred a loss at the date of the withdrawal in 2019, the withdrawal amount will not be equal to the original contribution amount and will be lower.

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Don't worry about it.     The returned amount will not be taxable because it is your own contribution.  Only the earnings in box 2a would be taxable.  So if there was a loss then box 2a would be zero so nothing will be taxable.