how to add form 5329 to my Turbotax web version

[sherryazczc]

Hi there, I am using Turbotax premier online version provided with Fidelity customer. I contributed to Roth IRA in the tax year of 2021, and then I request the return of excess contribution before the tax deadline Apr.15. I was told that I need to file form 5329 to report the tax for earning in this contribution, and that number need to be added to form schedule-2. I searched for some tips online, but I am using web version, I couldn't find any location to pull a form 5329. If I download my form, then how could I modify the numbers of schedule 2 and then modify the tax numbers in 1040, since it is already completed form. Anyone has experience with this and can tell me how to get this from 5329 added? Do I have to print a blank form and manually fill in those numbers in order to fix this? Thank you very much!

[DanaB27 · Accepted solution]

To verify, you made an excess contribution for 2021 and withdrew the excess and earnings in 2022?

If yes, then the earnings will be taxable in 2021 and are subject to the 10% early withdrawal penalty if you are under 59 1/2 (calculated on Form 5329 part I). TurboTax will create Form 5329 when you enter Form 1099-R for the removal of excess contributions and earnings.

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

• You can wait until you receive the 2022 Form 1099-R 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 Form 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 to the 2022 tax return but the withholdings 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 of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")

Please make sure, that you enter the excess contribution as withdrawn during the IRA contribution interview, to avoid that TurboTax calculates the 6% penalty in part IV of 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 the penalty screen and enter the contribution amount as withdrawn before the due date.

[sherryazczc]

Thank you for your quick reply, this is really helpful! To clarify, yes, I made the Roth IRA contribution for the tax year 2021, and I request the return of excess contribution one week ago. As you said, I can wait until next year after I get the form 1099-R to amend the tax return of tax year 2021, but I guess I prefer to fix it now in 2021 tax return then I can ignore this issue next year. I just tried what you said and add the form 1099-R manually and it works well. I checked the final tax form 5329 and 1040, it all look correct. Thank you very much for your help!

[TaxpayerPaul]

DanaB27,  Your reply was real helpful.  Thank you.  Here is a follow-up question.

The situation:  My son made a traditional IRA contribution in 2023 not realizing that his contribution plus the maximum contribution that my wife and I made on his behalf in 2023 to his separate Roth IRA at another investment company would put him over a federal IRA limit.  I am now preparing my son's 2023 tax returns using desktop TurboTax.  My son has requested the removal of his excess traditional IRA contribution his investment company.  Now we are going to use the first option you mentioned:  Wait until 2025 when my son receives his 1099-R from his investment company showing his removal and then amend his 2023 tax return.

My question:  In my current preparation of his original 2023 return, do I include a tax deduction for his traditional IRA contribution?

[AmyC]

I would not recommend that as you will have increased penalties and interest when you pay it back. 

@TaxpayerPaul 

[TaxpayerPaul]

Thank you AmyC.  I will follow your advice.  On my son’s behalf I will manually create a 1099-R and include it in his 2023 tax return.  That will cause TurboTax to create a Form 5329. 

A question:  In my son's 2023 return do we also claim a tax deduction for his traditional IRA contribution (which is then erased by the 1099-R/5329)?  OR do we not claim that tax deduction at all?

[AmyC]

It is erased so you will not be claiming the deduction. You do need to enter the contribution for the program to pick up the excess and get you on the right path.

@TaxpayerPaul

[TaxpayerPaul]

OK, got it.  Thank you for your help.

[TaxpayerPaul]

AmyC,

After I manually created a 1099-R showing the gross distribution (and its earnings separately broken out), TurboTax shows a tax on those earnings.  However, TurboTax is not creating a Form 5329 and is not erasing the IRA deduction.   

In the 1099-R I first tried codes 1 and 8.  Then in a revised 1099-R I replaced code 8 with code P.  In both versions of the 1099-R (1/8 and 1/P) I got the same result:  no 5329 Form and no erasure of the IRA deduction.

FYI.  Later under deductions TurboTax asked if I want to make the IRA contribution nondeductible.  I checked the No box, because I thought that TurboTax would erase the contribution as a result of the 1099-R.

How can I fix this? 

[DanaB27]

In the IRA contribution section you will enter on the penalty screen that you withdrew the excess contribution.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Traditional IRA”
4. Continue until the penalty screen and enter the excess contribution amount withdrawn.

Another option is no not enter the traditional IRA contribution since you removed it.

To enter the Form 1099-R to report the earnings on the withdrawn excess contribution:

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 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2 enter the earnings
8. Box 7 enter P and 1 
9. Check the "IRA/ SEP/ SIMPLE" box
10. Click "Continue"
11. On the "Which year on Form 1099-R" screen say that this is a 2024 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

Form 5329 will only be create if you have earnings in box 2a. TurboTax will put the earnings on line 1 of Form 5329 and the enter code 21 for line 2 to get the exception of the 10% early withdrawal penalty.

@TaxpayerPaul