Excess Roth IRA Contribution

[Lost2020]

Hi DanaB27

I like to know if you can provide some details on the 2nd option -- "amend you 2019 tax return when you get the 1099-R".  I'm the same situation where I contributed $7000 more on Roth for 2019. I pulled it out on 2/2020. I did not do anything on my 2019 tax return as I decided to wait to amend when I rec'ed my 1099-R in Jan 2021.   Can you please help -- when I try to amend 1040x using my last year 2019 Tax return by adding 1099-R  but the P/J code causes  no change on refund ($0)?  Per all your replies I've read on this topic, basically, I will have to amend and report the earning for my $7000 excess Roth contribution even I've withdrawn on Feb 2020.   Do I just ignore the P code and just use the J code in the 1099-R TurboTax form when I amend 2019 tax return?  If so, it seems to reflect there is a Federal Tax Due to 6% penalty + tax whole contribution, this doss not sound right?   I think I should pay only 10% of $7000 excess contribution, plus tax on the earning generated from the $7000 contribution as ordinary income?   But I just don't know where to start with TurboTax, please help.   Thanks!  

[DanaB27]

Did you withdraw the earnings when you withdrew the excess contribution? If yes, then your 1099-R box 1 should have the whole distribution amount (excess contribution and earnings) and box 2a should have the earnings listed (taxable amount).

When you amend your 1099-R you will enter it as shown with the codes P and J and then click continue. TurboTax will ask you what year is on the 1099-R and you will answer 2020, then TurboTax will calculate the correct tax due. Only the earnings are taxable.

When you filed your 2019 return before, did you tell TurboTax that you are withdrawing the excess contribution (where you enter the IRA contributions) by the due date? This should have eliminated the 6% excess contribution tax. If not then go to the IRA contribution section and find the " You Currently Have a Penalty" screen where you can enter the amount you withdrew before the due date of the 2019 return.

Please see How do I amend a 2019 return in TurboTax? for additional information.

@Lost2020

[Lost2020]

Thank you for the speedy response.  Yes,  the key is to ignore the Federal Tax and just go ahead let TurboTax does its work and click on the right year as you've instructed.  At the end, it figures out the right amount and added the right numbers to the right forms for my amend-return.   

Thank you again - can't do without TurboTax 😉

[hkc]

Hi:

I have some follow up questions regarding paying taxes on interest of ROTH excess withdrawal.  I got the 1099R for the ROTH excess which I withdrew last year before filing, and did the IRA Contribution worksheet in the 2019 Turbotax which shows:

25 Roth IRA contributions. Combine lines 20 through 24                       7,000.
26 Enter any contribution included on line 25 withdrawn before
the due date of the tax return. See Help                                                     7,000.
27 Excess Roth IRA contribution credit                                                               
28 Total Roth IRA contributions                                                                            0.

So this year, I got the 1099R for the earnings of the above contribution, which I withdrew at the same time with the Excess contribution.  

I understand from the previous messages that I need to amend my 2019 tax.  Since Turbotax automatically pulled in my tax information from my brokerage, how would I single out the 1099R for the Roth distribution for the 2019 tax amendment, and excluding it from the 2020 tax?  Or can I just pay the ROTH excess contribution gain tax as part of the 2020 Turbotax filing?  If I need to do the 2019 amendment "manually" in Turbotax, how would I enter the information for the 1099R?  And would I need to remove this information from the 2020 Tax?

Thank you very much for your help.

[hkc]

I have one more follow-up question:  I did the amendment in Turbotax 2019, but forgot to save it as an Amended file, so the amended return got saved under the same name as my original return (and override it!!!).  I went into this file and deleted my 1099R, but Turbotax just returned both my Federal and State taxes to 0, so the file still remembered that it's an amended file.  Is there anyway to retrieve the original file? 

Thanks very much, and sorry for this mess up.

[silver6054]

My daughter contributed to a ROTH IRA in Dec 2020 when it turns out she was ineligible.   She has removed the contribution and earnings in Feb 2021.   The advice earlier in this thread is to use codes P & J on the 1099-R and then enter the year as 2021 for the 1099-R to make the earnings/penalty taxable in 2020.  

Originally I used code 8 and J instead, which seems to automatically apply to 2020.   Is there a problem doing that?

Also, can I just enter it as a 1099-R or do I have to mark it as a substitute.  Doing that seems to create the need to contact the IRS so they can nag Fidelity, and write explanations on the substitute form

[macuser_22]

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@silver6054 wrote:

My daughter contributed to a ROTH IRA in Dec 2020 when it turns out she was ineligible.   She has removed the contribution and earnings in Feb 2021.   The advice earlier in this thread is to use codes P & J on the 1099-R and then enter the year as 2021 for the 1099-R to make the earnings/penalty taxable in 2020.  

Originally I used code 8 and J instead, which seems to automatically apply to 2020.   Is there a problem doing that?

Also, can I just enter it as a 1099-R or do I have to mark it as a substitute.  Doing that seems to create the need to contact the IRS so they can nag Fidelity, and write explanations on the substitute form

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Yes there is a problem doing that because the form you will receive will NOT have a code 8 and only a code PJ allows you to enter an explanation that is required if you do not actually have the 1099-R in hand.

It is NOT a substitute 1099-R because you do not have an actual 1099-R that is incorrect that the issuer refused to correct.     Substitute 1099-R's are to fix a defective form that the insurer will not fix.

here is the procedure and it is the only proper way to do it.

======================================

*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2020 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal Roth distribution but as a return of contribution with a code "JP" in box 7 - then:

You can just report it now and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 12 State withholding. Then you must also enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld.

The 2021 code JP will not do anything in 2021 but the withholding will be applied to 2021.

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 2019 "

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

On the "Which year" screen say that this is a 2021 1099-R. - That makes it taxable in 2020 and not 2019

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 2021 1099-R on your 2019 tax return to avoid having to amend in 2021.

The box 2a earnings will be taxable income reported on line 4b 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 Schedule 4 form.

[silver6054]

Thanks @macuser_22 .   I just wasn't sure about entering a 1099-R form I don't actually have this year, but I guess it's the best way!

[macuser_22]

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@silver6054 wrote:

Thanks @macuser_22 .   I just wasn't sure about entering a 1099-R form I don't actually have this year, but I guess it's the best way!

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If you do not *know* for sure from the financial institution that they *will* issue a 2021 1099-R with a code PJ and they verify the amounts in box 1 an 2a then you should wait for the real 1099-R in 2022, because if it is different then you would need to amend 2020 anyway to report the correct form.

[Lost2020]

Yes, the Federal Refund is 0 as you backed out the 1099-R. But open the Form 1040, is the same as before - no change to your refund amount.  

[hkc]

So, if I did an amendment to the 2019 Tax using the new 20201099-R for the ROTH excess withdrawal, I should delete it from the 2020 Tax?  Turbotax automatically downloaded everything from my brokerage account.

Thanks!

[macuser_22]

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@hkc wrote:

So, if I did an amendment to the 2019 Tax using the new 20201099-R for the ROTH excess withdrawal, I should delete it from the 2020 Tax?  Turbotax automatically downloaded everything from my brokerage account.

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Not necessarily of there was box 4 tax withholding, otherwise a code P 2020 1099-R will do nothing in a 2020 tax return other than instruct you to amend 2019.

[Geo7]

I have a similar problem.  I contributed an excess amount ($5700) to my Roth IRA in 2019, and paid the 6% penalty when I filed my 2019 return.  I forgot to withdraw the excess amount (plus earnings).  I have already made contribution to my traditional IRA for 2020, and also $2000 to my traditional IRA for 2021.  Now my question is: What is the best way to withdraw my excess contribution from my Roth IRA and can I rollover part of my excess contribution into my 2021 traditional IRA?  I am desperate 

[pcamp19]

We contributed to our 2019 Roth IRA's in Feb. 2019 - filed taxes in Feb. 2020 for 2019 Taxes and found out we were over the AGI to contribute.  By then we had already contributed to our 2020 Roth accts in Feb 2020.  Money was removed from the accounts in March of 2020 for both years.  I now received 1099-R for both years, however, when the money was removed, the market had dropped from COVID and it is less than what we put in.  Do I need to file an amended return for 2019 or just treat the 1099-R's as withdrawals from our Roth accounts since we are both over 60.  I am very confused as how to handle this.

[MarilynG1]

@pcamp19 If you received 1099-R's reporting removal of Excess Roth IRA contributions, enter them TurboTax exactly as they are issued.

The Codes in Box 7 will indicate that it is a withdrawal of excess contribution for the prior year.   Only the earnings reported in Box 2a are taxable.

Per Expert @JotikaT2:

"Go back into the federal section of your return.

1. Select Income & Expenses
2. Scroll down and select IRA, 401(k), Pension Plan Withdrawals (1099-R)
3. Select Edit to the right of your Roth IRA input
4. Continue through until you get to your detailed input section.
5. Under Box 1, enter your Gross distribution as provided on your 1099-R form.
6. Under Box 2, enter your earnings as the Taxable amount
7. Review the codes under Box 7.  They should reflect codes P and J.
8. Continue through the screens and enter information to explain the excess withdrawal as it applies to your current return"

Click this link for more info on How to Enter a 1099-R.