Excess Roth IRA Contribution

[jmoffett2146]

In February 2019 I made my 2019 Roth IRA contribution.  While doing my taxes today, I realized my income was too high to contribute.  I called my financial institution and requested a return of the excess contribution.  How do I report this in my 2019 tax filing?  Do I report I contributed to my Roth IRA?  If yes, where do I report a timely return of the contribution?

[DanaB27 · Accepted solution]

If you withdrew the complete contribution with all earnings then you do not have to include the contribution on your tax return.

You will get a 1099-R in 2021 for the withdrawal of the excess contribution which has to be included in your 2019 tax return. You have two options, you can wait and amend you 2019 tax return when you get the 1099-R or you can report it now by using these instructions 

Solution Reporting of Withdrawal of an excess contribution

Solution from macuser_22

You can just report it now and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/of box 12 State withholding. Then you must enter the 2018 1099-R in to the 2018 tax return since the withholding is reported in the year that the tax was withheld. The 2018 code P will not do anything in 2018 but the withholding will be applied to 2018.

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 2016 "

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

On the "Which year" screen say that this is a 2018 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.

Enter the explanation for the excess contribution and that you are reporting a 2018 1099-R on your 2017 tax return to avoid having to amend in 2018.

The box 2a earnings will be taxable income reported on line 15b 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 form.

[pillarsoftheearth]

Are codes P and J still valid when doing this for excess contributions made in 2019? And there's another most from macuser_22 giving the codes in the opposite order (J in top box, P in bottom) - does that matter? Link below.

https://ttlc.intuit.com/community/retirement/discussion/how-do-i-report-an-excess-contribution-made-...

[DanaB27]

Yes, codes P and J are still valid for excess contributions made in 2019 and withdrawn in 2020 by the due date. The order of the codes does not matter.

@pillarsoftheearth 

[Ringfinger1999]

Sorry to be dense, but I am a little confused with dates and what to file.

I filed online a few days back.  Turbotax informed me that I made an excess contribution and need to withdraw amount in excess as well as earnings.  It also asked me something about how  much I am going to take out, etc.  Regardless, the taxes are filed now.  When I look at Form 5329, I see no amount in Part IV Line 23 or anywhere in Part IV so I am assuming it took that amount off of my taxes as taxable, which I assume is what should have happened.

So, and I should say this is a joint return so both my wife and I had to remove the excess and earnings.  We have and both brokerages told us that we would get a 1099R next January. 

So, with that in mind that we have withdrawn it, and also in mind that we will receive the form 1099R in 2021, and also I had taxes withheld on the earnings, what will happen? 

Do I just file my 2020 taxes next year and say that I got the 1099R and fill in the info and it somehow asks me if it was for 2019?  How will Turbotax know and the IRS know it was for 2019?  I would rather not muck up my 2019 return further and file an amendment but what can I do?  I assume this is the same question that has been asked prior but since I had taxes withheld, what next?

Thanks for bearing with me all.

[DaveF1006]

When that 1099R is issued, there will be a code in Box 7 --code P return of contribution taxable in 2019.This code will render this 1099R as non-taxable.

[Ringfinger1999]

I get you.  So I will pay taxes for 2020 on the earnings when I file?  Nothing on the contribution?  Then 10% early withdrawal on the earnings as well?

[DaveF1006]

Yes, you may be taxed on the earnings and 10% for the early withdrawal unless you returned the earnings along with the excess contribution.

[Ringfinger1999]

Returned as in placing back in the IRA in 2020?  Not sure that that meant.  Thanks!

[DaveF1006]

This means you won't be taxed on the excess contribution. You will receive a 1099R next year for the return of the contribution.  you iwll report this 1099R in your return but you won't be taxed for it because it is a return of excess contribution.

[Ringfinger1999]

Okay, I get that part but I will be taxed on the earnings from that contribution at 10% early withdrawal plus my tax rate, correct?

[DianeC958]

Yes, you will be taxed on the earnings for the excess contributions, plus the 10% penalty and any Federal or State taxes.

These are all only on the earnings for the excess amount contributed.

[hkc]

Hi:

I am in the same situation, as I contributed to my ROTH IRA last year May 2019, and as I am working on my Turbotax 2019, I found out that my AGI was too high for this contribution.  So I worked with my brokerage to withdraw that excess ROTH contribution, with some gain.  Fed and State taxes were not withheld for the gain.

Turbotax IRA contribution worksheet has line 25 for "ROTH contribution", and line 26 for "ROTH withdrawal before tax filing", and line 28 for "total ROTH contribution".  On line 26, Turbotax doesn't allow me to enter the full withdrawal with gain, it only accepts the same amount as line 25, and therefore line 28 shows a 0, which is what is shown on my Summary of "Your 2019 Deductions and Credits" under "Traditional and ROTH IRA contributions"

My questions:

- Is the above the correct way to file this year's tax return, which is 0 contribution for ROTH?

- My brokerage will not issue the 1099-R until the 2020 tax year in 2021.  Turbotax will automatically download the information into my 2020 tax return then.  So will I be paying Fed and State taxes for the gain at that time?

Thank you very much for your help, and I look forward to your response as I would like to finish my tax return and file ASAP.

[KarenJ2]

You don't owe tax on the earnings in 2019, however you will owe it i 2020.  So in early 2021 you will receive a 1099-R that will show the earnings for you to include on your 2020 tax return.

If you wish to include the taxable earnings on your 2019 return, please see below.

If you do enter them on your 2019 return, ignore the 1099-R you receive early next year with the taxable earnings.

Please see the following from dmertz:

Make sure that your investment company reports these distributions combined as a return of contribution, not as regular distributions.  Assuming that they do so, you'll receive a 2020 Form 1099-R with codes J and P in box 7.

To report this in TurboTax, first, make sure that you have entered the original contribution under Deductions & Credits and in the follow-up indicate that you had the excess contribution returned.  This will cause TurboTax to ask you to enter an explanation statement describing the return of contribution.  Next, you'll need to enter into 2019 TurboTax the 2020 Form 1099-R as if you have already received it:

• Box 1 = Gross amount distributed (amount of contribution returned plus the amount of earnings)
• Box 2a = Amount of earnings
• Box 7 = codes J and P

Be sure in the follow-up to indicate that this is a 2020 Form 1099-R.

If you are under age 59½, this is all you need to do.  TurboTax will include the gross amount on Form 1040 line 15a and include the earnings on line 15b.  TurboTax will also prepare Form 5329 to calculate the 10% early-distribution penalty on the earnings and include that penalty on Form 1040 line 59.  However, if you are over age 59½, after clicking the Continue button on the Your 1099-R Entries page you'll need to claim an "Other reason" exception to the early-distribution penalty, reducing the penalty amount to zero.

[Mas_Char_02_31]

Similar question regarding Removing Roth IRA Excess contributions, but for Prior years.

• Have 4 years of Excess contributions that were just discovered March of this year.  (didn't know my AJI was over the limit)
• Vanguard system did not prevent me from contributing, so doing so, therefore I assumed it was okay. 
• Vanguard told me I needed to remove the excess, which I did, in March 2019. 
• Vanguard and TurboTax Experts explained none of the Removals are taxable,
  • The 2018 removal is taxable, but there was a loss, so 0 taxable
  • The 2015/16/17 (called Prior Years), the gains are not considered, and instead, a 6% penalty applies.  Quote from TurboTax Expert "2017 excess can only be removed with normal distribution with amount in box 1, blank in 2a and 2b, (not determind checked) and Box 7 = T (over 59 1/2).
• Received a 1099-R from Vanguard in Feb, 2020, that looks like this:
  • 12,899.36 (combined 2017+2018), Code PJ.  (BTW, this works perfectly in TurboTax)
  • 13,000 (combined 2015+2016), Code T (with "tax not determined" checked).  This not working.
• TurboTax Expert says the 1099-R is incorrect.  Says there should be one 1099-R for 2018, and a separate 1099-R for 2015, 2016, 2017, since Prior Years can only be reported as Normal Distribitons (Code T)
• I have created a table below if you need to see the exact dates of the contributions and withdrawals.

I did some research (both with TurboTax Community Experts and H&R Block), and I think these are the steps I need to take:

1. Figure out how to get all the amounts to show up on TurboTax (1040) as non-taxable, because I've already paid taxes on this money (yes...I know about the 6% penalty...getting there), or to figure out why TurboTax is treating the Prior year's Excess as either tax or penalty when entered in IRA Income form.
2. File my 2019 taxes in TurboTax once Step 1 is completed successfully
3. Go back and amend my 2015/16/17/18 TurboTax returns as follows:
   • TurboTax / Amend / 2016 / Other Taxes / Fill out the Excess Contribution questions to calculate my 6% cumulative penalties.  Repeat for the other 3 years.
   • This will generate the form 5329 (for that specific year) and result in the "amount due" that I then mail to IRS with the check.
4. To the best of my knowledge (from reading TurboTax Expert responses, that is the process I'm supposed to follow?  Correct?

So, here are my questions

1. Am I missing any steps?  Are the sequences correct?
2. Why is my 2nd entry (the 2015+2016) excess generating a $3120 fee/tax?  This should be non-taxable.  There is no code available for Excess Contributions in Prior Years.  The closest is Q (normal) and if I use that, everything is perfect.
3. If I am missing anything, can you tell me the exact steps I am supposed to take? 

Contribution Date	Dollar	Withdrawal Date	Dollar
2015-08-19	$6500	2019-03-22	$6500	6% penalty, no tax
2016-09-30	$6500	2019-03-22	$6500	6% penalty, no tax
2017-02-09	$6500	2019-03-22	$6500	6% penalty, no tax
2018-01-10	$6500	2019-03-19	$6399.36 (loss)	6%+tax on gain (0)

This is what I think the 1099-R "should" look like, but I need to figure out why TurboTax is charging me $3120 for Line 2 when entered.

Line 1 (the 2018 Excess Withdrawal):  Box 1: 6399.36, Box 2a and b: blank, Box 7: PJ. 

Line 2 (the 2015/16/17 Withdrawal):  Box 1:  $19,500, Box 2a and b blank, exception checked, Box 7: T