Do I need to amend my return?

[sunflower12]

Hello!

I made an excess contribution to my Roth IRA in 2020, which I withdrew in 2021 before filing the 2020 return. As suggested by the TurboTax help box, I entered in the Form 1099-R into my 2020 return even though I did not have the actual 2021 1099-R yet. Here's what was stated in the help box:

"This is probably the most common situation: If you made the contribution to your Roth IRA in 2020 (between January 1, 2020 and December 31, 2020), and you withdrew it in 2021, you'll get a Form 1099-R. However, you might not get the Form 1099-R until 2021.

Your Form 1099-R will have a code P and a code J in box 7.

The Form 1099-R will indicate it is for 2021. One way to handle this is to create an amended 2020 return (Form 1040X) and include it there.

There's an easier way, though: Just enter the Form 1099-R on your 2020 return. When you do, enter code P and code J in box 7. You will be asked whether this Form 1099-R was issued with the year 2020 or 2021 printed on it. Select 2021."

To my understanding, the help box stated that if I did this, I would not need to amend the 2020 return.

Fastforward to the present, I was doing my taxes and had just entered the 2021 1099-R. TurboTax then says that I might need to amend my 2020 return. My question is, do I still need to amend my 2020 return, given that I technically had entered the 2021 1099-R in my 2020 return already? I also double checked the PDF of my 2020 return, and I didn't see anything about a 2021 1099-R on it... Although I could be wrong and I'm just missing it... Should I be seeing the 1099-R on my 2020 return?

Thank you!! 🙏

[DanaB27]

Yes, if you had created a 1099-R on your 2020 tax return for the withdrawal of excess contribution and earnings then you do not need to amend your 2020 tax return. 

Check you From 1040 line 4. If this created Form 1099-R was your only 1099-R in 2020 then Line 4a should have the distribution amount from box 1 and line 4b should have the earnings from box 2a.

[sunflower12]

Thank you so much!! Your response has helped me a lot, I'm glad that I don't have amend my return after all!

I also have another question that I'd like to ask you for clarification. For this year's tax return, I've come upon a page that is titled, "How Much Excess to 2021?" Underneath, it says, "Indicate how much of your remaining excess contribution of [x amount of $] you want to credit toward your 2021 Roth IRA contributions." 

What does this mean? Am I supposed to enter in the full amount of my excess contribution? I had originally entered 0, but then I got an error message saying that I can't enter in 0. My thought was, since I'm not contributing to my Roth IRA for 2021, I would put 0.

[GeorgeM777]

It appears that your Roth IRA contribution was more than the maximum allowed for the year in question and TurboTax is suggesting that you designate at least some portion of your contribution to 2021 so as to remove the excess.  According to the IRS, for 2022, 2021, 2020 and 2019, the total contributions you make each year to all of your traditional IRAs  and Roth IRAs can't be more than:

• $6,000 ($7,000 if you're age 50 or older), or
• If less, your taxable compensation for the year

If you do not want to allocate some portion of your Roth IRA contribution to 2021, then you will need to remove the excess.  Removing the excess entirely from your Roth IRA may result in a 1099-R being issued to you, but if you remove the excess amount timely, you may not be subject to the penalty for an excess contribution.  It may be easier to designate the excess to tax year 2021; however, this is your retirement account and your investment goals are what matter most.  Thus, you may wish to discuss the matter with your financial advisor.  Of course, you are free to post additional information for our review and comment. 

@sunflower12

[DanaB27]

In addition to the great answer provided by expert GeorgeM777, please check if the excess contribution from 2020 got carried over to the 2021 tax return on the  "Enter Excess Contributions" screen. If yes, then please delete the entry since you had removed the 2020 excess contribution by the due date of the 2020 tax return.

Please also check that you didn't get a 6% penalty excess contribution calculated for your 2020 tax return on Form 5329 part IV if it got carried over. You should not have a penalty for 2020 since you removed the excess in time.

@sunflower12

[sunflower12]

Oh ok, I thought I had to enter the excess contribution I made in 2020 into the "enter excess contributions" screen since it was asking for "excess contributions made in prior years." But it sounds like because I withdrew the excess before the deadline of the 2020 return, I can report that I had 0 excess contributions?

I also checked Form 5329 part IV on my 2020 return. As you said, I didn't get the 6% penalty, part IV is blank.

@DanaB27 

[DanaB27]

Yes, you will enter $0 for "excess contributions made in prior years." because you withdrew the excess before the deadline of the 2020 return.

@sunflower12

[sunflower12]

Thank you so much for your help Dana!! I appreciate that your responses employed close-looped communication techniques! You're so detailed and you made sure to answer all my questions each time I responded. You explained everything clearly too. Also thanks for looking out by suggesting that I double check my Form 5329 part IV to make sure I didn't get the 6% penalty.

I think that's all the questions I have for now. Thank you again, take care @DanaB27 !