401K taxation issue

Forum|Forum|6 years ago
February 20, 2020
3 replies
62 views

I retired at the end of May 2019. And I made contributions until I retired and I'm over 70 1/2. I rolled over my 401K to a financial institution (where I have other rolled-over 401Ks) after I retired. TurboTax says I need to pay a 6% penalty on my contributions. I had taxes withheld for the interest made on my contributions and received the interest portion sent to my account, and the rest of the (non-taxed) portion sent to the financial institution. I have not exceeded the amount I can contribute for 2019. How do I delete the (unwarranted) 6% penalty from my TurboTax tax submission? I'm trying to figure out how to (legally) remove the entry that says I'm supposed to pay the penalty.

Tax Advice

Best answer by JulieS

Expert Reviewed

It sounds like you have entered IRA contributions that should not have been entered as such.

The amount you rolled over is not an IRA contribution, neither are the amounts you contributed to your 401(K) before you retired.

The only IRA contributions that you should enter in as an IRA contributions, are amounts you contributed outside of work. You can contribute up to $7000 or the amount of your wages, whichever is less.

To review what you entered:

Use the search box to search for IRA contributions.
Click on Jump to IRA contributions.
Check the type of accounts you have, click Continue.
On the screen that says, Tell Us How Much You Contributed at the top, enter only the contributions you made directly to your IRA with after tax money.
Keep going through the section, if you have made an excess contribution, you will get a screen that says, Your IRA Contribution Isn't Permitted and it will have an explanation of why it is not permitted.

If you really made an excess contribution, you can remove the excess, and any earnings on the excess, from your account by April 15 to avoid the penalty.

Update: Even though the tax filing deadline has been extended to July 15, 2020, that extension doesn't apply to the time allowed to correct excess deferrals.

[Edited 03/25/20 | 10:20 am PST]

JulieSAnswer

Level 15

Expert Reviewed

It sounds like you have entered IRA contributions that should not have been entered as such.

The amount you rolled over is not an IRA contribution, neither are the amounts you contributed to your 401(K) before you retired.

To review what you entered:

Use the search box to search for IRA contributions.
Click on Jump to IRA contributions.
Check the type of accounts you have, click Continue.
On the screen that says, Tell Us How Much You Contributed at the top, enter only the contributions you made directly to your IRA with after tax money.
Keep going through the section, if you have made an excess contribution, you will get a screen that says, Your IRA Contribution Isn't Permitted and it will have an explanation of why it is not permitted.

If you really made an excess contribution, you can remove the excess, and any earnings on the excess, from your account by April 15 to avoid the penalty.

Update: Even though the tax filing deadline has been extended to July 15, 2020, that extension doesn't apply to the time allowed to correct excess deferrals.

[Edited 03/25/20 | 10:20 am PST]

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jmward1943Author

Level 2

Thanks. I knew I had a 401K, but I couldn't figure out why I was told that I had an IRA. For some reason one of the TurboTax pages had automatically checked the boxes for my wife and I as having IRAs. When I un-clicked the two boxes the penalty went away.

SteamTrain

Level 15

I suspect (but do not know) that you entered the rollover amount in the software as an IRA "contribution" on the Deductions&Credits page. It was not contribution to an IRA.

The Rollover amount is noted by you on one of the pages that follows the 1099-R that you received from the 401k administrator..and nowhere else

Your Contributions noted for the 401k on your W-2 shouldn't be causing this either.

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BUT.......the exact date you went over age 70.5, the date of the 401k rollover to the iRA, and the RMD's that might be required (And when the RMDs will be required) gets into a mess I will not venture into.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*