Do you report Roth IRA Contributions

[sridharm]

Hi,

Do you generally report Roth IRA contributions in turbo tax online . If yes how to do it .

Thank you

Sri

[DanaB27]

Yes, you it is best to enter Roth contributions into TurboTax to have a record of your contributions, to check that your Modified Gross Income did not limit how much you can contribute and you might qualify for the Retirement Savers Credit.

Please follow these steps:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”

[sridharm]

Thank you for tour prompt response. I have a follow up questions.

1. In the past I never recorded Roth IRA contributions in turbo tax while reviewing this I noticed

 I made some excess contributions for Year 2021/2019/2018. 

2. I yet to file taxes for Year 2021 so what I have to fix the Excess Roth IRA contributions.

3. What options I have to fix excess Roth IRA contributions for Year 2019 and 2018 even though excess

    may not be that much.

Please share your detailed response with which I should be able to handle it in turbo tax.

Thank you for your support and understanding.

Regards,

Sri

[DanaB27]

2. To fix the 2021 excess contribution you will have to request a withdrawal of excess contributions plus earnings with your financial institute by the due date. If the excess contribution was because of your Modified Adjusted Gross Income (MAGI) then you might want to withdraw some extra excess because the earnings are taxable in 2021 and will increase your MAGI.

You will get a 2022 Form 1099-R in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This Form 1099-R will have to be included on your 2021 tax return and you have two options: 

• You can wait until you receive the 1099-R  2022 in 2023 and amend your 2021 return or
• You can report it now in your 2021 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2022 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything in 2022 tax return but the withholding will be applied to 2022.

To create a Form 1099-R in your 2021 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount under "Another reason" if you are over 59 1/2 (if you under 59 1/2 click "Continue")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

Another option to fix the 2021 excess contribution, if your Roth contribution was limited by your Modified Adjusted Gross Income (MAGI), is to recharacterize the 2021 Roth contribution as nondeductible traditional IRA contribution and then convert the funds back to the Roth in 2022. You would have to request the recharacterization by the due date.

You will enter the recharacterization when you enter the contribution to the Roth IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

3. For the 2018 and 2019 excess contributions you will have  

 to request a regular distribution (without the earnings) because you remove the excess after the due date of the 2018 and 2019 tax returns. The 2022 Form 1099-R will be entered on your 2022 return.

You will have to pay the 6% penalty for the years 2018, 2019, 2020, and 2021.   You will have to amend your tax returns to pay the 6% penalty. 

In 2018 you will enter the Roth contribution under IRA contributions and you will get a warning that this is an excess contribution and TurboTax will calculate the penalty on Form 5329.

In 2019 you will enter the Roth contribution under IRA contributions and enter the 2018 excess on the "Enter Excess Contributions" screen. You will get a warning that this is an excess contribution and TurboTax will calculate the penalty on Form 5329.

In 2020 you will enter the Roth contribution (if you made one) under IRA contributions and enter the 2018 plus 2019 excess on the "Enter Excess Contributions" screen. You will get a warning that this is an excess contribution and TurboTax will calculate the penalty on Form 5329.

In  2021 you will enter the Roth contribution under IRA contributions and enter the 2018 plus 2019 excess on the "Enter Excess Contributions" screen. You will get a warning that this is an excess contribution and will enter that you withdrew the 2021 excess contribution amount on the penalty screen. TurboTax will calculate the penalty on Form 5329 for the excess from 2018 and 2019.

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. On the "Do you have any Excess Roth Contributions" answer "Yes"
8. On the "Enter Excess Contributions" screen enter the total excess contribution from 2019 and 2018

If your MAGI allows and you made less than the full contribution in 2020 then you might be able to apply some of the excesses to 2020. Then you would request to withdraw only the rest amount for your 2018 and 2019 excess contribution.

@sridharm 

[sridharm]

Thank you so much for your detailed explanation and I am trying to process everything.

After looking into further looks there is minimal excess Roth IRA contribution made for 2019 and 2020

and mid range excess contribution for 2021. Is the following order of actions is as below .

1. First  do I need  to amend  2019 and 2020 returns in turbo tax  to report excess contribution.

2. Then I address for Year 2021 either using one of the option you proposed. If I opt to request withdrawal of

 excess  including earning for year 2021.

3. Will the above two steps will address everything or I still need to address the excess contribution of year

    2019, 2020. If yes what options I have to address it once for all.

Thank you for your support and understanding really appreciate your help.

Regards,

Sri 

[DanaB27]

1. Yes, if you didn't have an excess contribution in 2018, then you will only need to amend 2019 to include the 2019 excess and 2020 tax return to include the 2019 and 2020 excess and pay the 6% penalty each year.

2. You can either recharacterize the Roth contribution (only if your MAGI limited your contribution) or withdraw the excess contribution plus earnings, then the earnings have to be reported on your 2021 tax return. Make sure you use your financial institute's form to request the withdrawal of excess contributions and earnings. Do not withhold any taxes. The earnings will be taxable in 2021 and be subject to the 10% early withdrawal penalty if you are under 59 1/2.

3. Please make sure that you enter on your 2021 tax return that you had an excess contribution from 2019 and 2020 to pay the 6% penalty on that amount.

[Opus 17]

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@sridharm wrote:

Thank you so much for your detailed explanation and I am trying to process everything.

After looking into further looks there is minimal excess Roth IRA contribution made for 2019 and 2020

and mid range excess contribution for 2021. Is the following order of actions is as below .

1. First  do I need  to amend  2019 and 2020 returns in turbo tax  to report excess contribution.

2. Then I address for Year 2021 either using one of the option you proposed. If I opt to request withdrawal of

 excess  including earning for year 2021.

3. Will the above two steps will address everything or I still need to address the excess contribution of year

    2019, 2020. If yes what options I have to address it once for all.

Thank you for your support and understanding really appreciate your help.

Regards,

Sri 

---

You must first amend your 2019 return to calculate the excess.  Since you can't remove it, you will have a form 5329 with a 6% penalty, and you will need to pay the penalty when you mail the amended return.  Expect the IRS to send a bill for interest since you are paying late.  

Second, you must amend your 2020 return.  Information from the amended 2019 return will be required to calculate the correct new penalty for 2020, because it will include the prior excess contribution (from 2019) and the current (2020) excess contribution.    You will need to pay the penalty when you mail the amended return.  Expect the IRS to send a bill for interest since you are paying late.  

The third step is to request a return of excess contributions for the 2021 Roth contributions only.  This must be done before April 18, 2022, and to keep from getting confused, I would not file your 2021 return until you process the return.  The plan trustee will send you the excess Roth contributions and their earnings, if any.

When you prepare your 2021 return, you will need information from the amended 2020 return to calculate and pay another 6% penalty on the excess carried forward from 2019 and 2020.  However, you will not report making a 2021 Roth contribution.  Because you removed the contribution before the deadline, it's as if it never happened.

The fourth step is to make a regular Roth IRA withdrawal in the amount of the excess from 2019 and 2020.  You can make this withdrawal any time in 2022 but it must be before December 31, 2022, and don't wait to the last day since most plans take 3-4 business days to actually process a withdrawal.  You don't need to withdraw the earnings as well, only the principal contribution.  (The withdrawal of earnings rule only applies to excess that is withdrawn within the April 18 deadline.  Any earnings from the 2019 and 2020 excess can stay in the Roth IRA.)

The fifth step is to file your 2022 tax return.  You will need information from your 2021 return about the excess carryover and the penalties.  When you report the regular Roth withdrawal, this will cancel out the excess carry forward so you won't be charged any further excess penalties.  You will also report a 1099-R if the trustee paid you earnings when you withdrew your 2021 excess.  The earnings income from excess contribution will be subject to regular income tax plus a 10% penalty if you are under age 59-1/2.

[sridharm]

Hi Dana and Champ,

I am getting to ready to take care of this and just amended tax return for Year 2019 in turbo tax online.

Couple of quick questions related to it.

1.  We just need to sign Form 1040-X only right ?

2.  Print and mail papers starting from 1040-X to Form 5329 from the turbo tax generated amended return pdf

3.  Can we pay the penalty (balance due) online www.irs.gov/payments instead including check with     

     amended return

4.  Can we parallelly  do the amendment for Year 2020 and send it separately to IRS or we can send the both

     the amended tax returns together.

Thank you for huge support and understanding. 

Regards,

Sri

[JulieS]

Yes, you just need to sign and mail in your 1040-X with Form 5329.

Yes, you can pay online rather than send a check.

You should amend 2020 too, but don't send them in the same envelope. They need to be sent separately. 

[Opus 17]

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@sridharm wrote:

Hi Dana and Champ,

I am getting to ready to take care of this and just amended tax return for Year 2019 in turbo tax online.

Couple of quick questions related to it.

1.  We just need to sign Form 1040-X only right ?

2.  Print and mail papers starting from 1040-X to Form 5329 from the turbo tax generated amended return pdf

3.  Can we pay the penalty (balance due) online www.irs.gov/payments instead including check with     

     amended return

4.  Can we parallelly  do the amendment for Year 2020 and send it separately to IRS or we can send the both

     the amended tax returns together.

Thank you for huge support and understanding. 

Regards,

Sri

---

1&2. I believe you need to include any forms that changed as a result of the amendment.  The 1040-X is a summary, but you have to send anything else that changed.  If you prepared a 1040 that shows a change in tax, then you would need to send the 1040-X, the 1040, and the 5329.  Sign every place that is indicated (the 1040 and 5329 also require a signature.)

However, if the only thing that changed with your tax return is form 5329, you can file it by itself.  You don't need the 1040-X or 1040.  Be sure to sign the 5329 where indicated.  

3. Yes, you can pay online.  Select "2019 amended return" from the reason menu.  

I would only pay the tax owed, not any additional penalties and interest for late payment, even if Turbotax suggests it.  The IRS may send you a bill for interest and a late payment penalty (since the tax was due April 15, 2020).  You will owe the interest, but if there is also a late payment penalty, you can apply for a waiver.

4. Amend 2020 after 2019, because amending 2020 will require updated information from 2019.  Once again, if the only thing that changes is form 5329, you can send the 5329 only (be sure to sign it).  Send it in a separate envelope.  When making the online payment, select "2020 amended return" from the reason menu.

[sridharm]

Hi thank you with your help I was able to amend Year 2019 and 2020 returns and mailed it

IRS. For the next steps for Year 2021.

1. When I submit Removal of Excess Form with brokerage for Year 2021 should I  choose option of

    Withhold taxes from my distribution at a rate of 10% or elect NOT to have federal

    income tax withheld.

Thank you for your support.

Regards,

Sri

[Cynthiad66]

The IRS does require withholding, at a rate of at least 10%, on distributions of earnings attributable to returns of excess contributions to Roth IRAs, unless you elect NOT to have withholding apply by indicating this on your Return of Excess request.

@sridharm

[Opus 17]

@sridharm 

How much are the earnings that we are talking about? Remember that they will be added to your taxable income for 2022, so if they change your tax significantly, you might need to pay estimated taxes or have some withholding.

For example, if the earnings are $500, you might owe $150-$250 more tax than you expect (depending on your other income). If that is less than your normal refund amount, then those new taxes will simply decrease your refund, and you don’t really need to have any back up withholding.  However, if the earnings were $10,000, then the taxes might be $2500-$4000, and you might not only need the 10% withholding but to make an additional estimated tax payment.

It depends on the amount of the earnings that are being withdrawn, your other income, and your age.

[sridharm]

Hi thank you with your help I was able to amend Year 2019 and 2020 returns and mailed it

IRS. For the next steps for Year 2021.

1. We submitted Roth IRA excess withdrawal form to my spouse Roth IRA provider and they processed with

    in four days. Where as my Roth IRA provider has not yet processed it more than two weeks and they may

    expect to do it by 18th April but no grantees provided.

My question in this case should I delay filling taxes for Year 2021 till I see the funds are indeed removed my Roth account and file an extension if it is not taken care by 18th April.

Thank you for your support.

Regards

Sri

IRA account

[DanaB27]

You can go ahead and file your 2021 tax return.

“If you timely filed your 2021 tax return without withdrawing a contribution that you made in 2021, you can still have the contribution returned to you within 6 months of the due date of your 2021 tax return, excluding extensions.” (IRS)

@sridharm