Excess removal from roth ira for 2019

[freeyou08]

HI I contributed 6000 for 2019 in 2020 and found out that I am over the income limit to contribute so I removed excess in December 2020.

I've got 2020 1099-R now showing $ 5871 distribution with code J (early distribution). It does not show code P (return of contribution taxable in 2019). is this correct??

I indicated in deduction and credit that I did excess contribution in 2019 (6000)

And form 5329  generated shows that 129 excess contribution with code J.

This does not seem to be correct.

Should I enter code J and P even though 1099-R does not show it?

And I did recharacterization 2020 contribution for roth to t ira and Converted to roth IRA.(about 14K)

Does that occur tax for the gains that I made in Roth IRA ? I've got 7K taxable income calculated in Form 8606. Did I enter correctly?

Thank you in advance for your advice.

[DanaB27]

Yes, this is correct since you removed the excess contribution after the extended due date of return(October 15). You only have code P if you request the withdrawal of excess contribution plus earnings before the due date of the return.

The 1099-R will have to go on your 2020 tax return. Since you withdrew the excess contribution before December 31, 2020 you do not have to pay the penalty for 2020. Please delete that you have a prior excess contribution on your 2020 tax return.

 But you will have to pay the penalty for 2019. If it wasn't included on your 2019 return then you will have to amend your 2019 return. Please see How do I amend a 2019 return in TurboTax?.

Yes, the gains converted to the Roth IRA will be taxable. If you had gains of $7k then this seems correct.

For your review:

You will enter the recharacterization when you enter the contribution to the Roth IRA on your 2020 tax return:

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"

To enter the 1099-R distribution/conversion: 

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
8. Answer the questions about the basis

[freeyou08]

Thank you for your prompt answer.

So I have to amend 2019 tax return. 
And I need to delete excess contribution part for 2019. 
May I ask you why? 
And I converted T IRA to Roth right after settlement day so. The gain did not occur inTIRA. Do I still owe tax for that. Gain?

[DanaB27]

Yes, if you did not pay the 6% on your 2019 tax return then you will have to amend the 2019 tax return to include the penalty.

On your 2020 tax return you need to delete the entry that you still have an excess contribution from a prior year since you withdrew that amount before December 31, 2020.

Did you have deductible contributions of $7,000 in your traditional IRA that caused the $7,000 taxable income on line 18 on Form 8606?

[freeyou08]

To amend 2019 tax return, do I use 2020 1099-R showing 5871 distribution??I only have tax form 5498 for 2019. 
If I use 2020 1099R to amend 2019 tax return, do I still report it in 2020 Tax return??

I did not do any deductible T IRA. 
I  contributed non deductible 7 k to Roth IRA and recharacterized 14k( 7k + 7k earning) to T IRA, then converted to Roth IRA ( back door IRA). So taxable amount seems to be for earnings even though it has not occurred in T IRA?

[DanaB27 · Accepted solution]

On your amended 2019 tax return you will need to enter the $6,000 Roth IRA contribution, then TurboTax will tell you it was an excess contribution and calculate the 6% penalty on Form 5329.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until TurboTax tells you have a excess contribution and shows you the penalty.

Please see How do I amend a 2019 return in TurboTax?

Yes, the earnings that are converted from the traditional to Roth IRA will be taxable income.

[freeyou08]

Thank you!
Just for quick clarification, I’ve got 2020 1099R with code J.
Then I do not have to amend 2019 form as you answered in my other question post re; amend 2019 tax form with 2020 1099r with code J. 
So I just need to do 2020 tax form not to amend 2019. Is is correct?

Thank you very much for your help!!

[DanaB27]

Correct, the Form 2020 with code J goes on your 2020 tax return.

If you had already reported the excess contribution on your 2019 tax return then you do not need to amend your 2019 return.

[freeyou08]

No I did not report excess contribution in 2019 return. 
So I just need to report excess in 2019 without any tax form and it will generate form 5329 for 2019.
And report 1099r 2020 for 2020 tax return only.  Right?

I should prepare Amended 2019 tax return with 5329 form 

And do I still get 5329 form in 2020 as I enter 1099 R?

[DanaB27]

Yes, you will have to amend your 2019 tax return to report the excess contribution without having a tax form to enter. On your amended 2019 tax return you will need to enter the $6,000 Roth IRA contribution, then TurboTax will tell you it was an excess contribution and calculate the 6% penalty on Form 5329.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until TurboTax tells you have a excess contribution and shows you the penalty.

Please see How do I amend a 2019 return in TurboTax?

Yes, you report the 1099-R 2020 on your 2020 tax return. You won't have Form 5329 in 2020 since you only withdrew the contribution and the is tax and penalty free.

[freeyou08]

So I owe penalty for $6000 excess contribution in2019 but no penalty for the early distribution ( $5871) that I made in 2020, which was actually excess removal of 2019 contribution. Correct?

Does it matter that distribution is $5871 instead of $6000 as there is still excess of $129?

[DaveF1006]

Yes, because you could be still charged an excess penalty on the $129 excess. Why the different amounts?

[freeyou08]

I don’t know why. I asked them to remove 6000. And this is what I got from Vangard. What should I do about 129?

I assumed it is 6000 + loss. But I found it is not as it is code J( regular early distribution)

[DaveF1006]

It depends. Enter the 1099-R the way it is and see if you receive an excess penalty amount based on the $129 amount. ($13) It may have been some kind of a fee that was charged for the inconvenience in handling the excess contribution. Usually it will say this in a disclosure statement that may have been included in the 1099-R sent.

[freeyou08]

No unfortunately there was no disclosure statement. 
But I did find in transaction history that +130 distribution in cash right after -130 cash distribution on the same day. This made total distribution 5891 instead of 6000. Should I contact Vanguard?