Taxpayer made an ineligible/excess $7500 contribution to Roth IRA in 2023 due to MAGI limits. The excess was withdrawn in Feb '24 before filing for 2023. After initially entering this contribution, Turbotax generated a Form 5329 and 6% additional tax. Now that it's been withdrawn, I want to eliminate this 6% tax, but don't see anywhere in the step-by-step dialogue to describe this scenario.
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To confirm, you requested to withdraw the excess Roth contribution plus earnings.
If yes, then during the IRA contribution interview you can enter that you withdrew the excess contribution on the "You Currently Have a Penalty" screen. Enter the $7500 excess contribution as withdrawn and then TurboTax will not calculate the 6% penalty.
You will get a 2024 Form 1099-R in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:
To create a Form 1099-R in your 2023 return please follow the steps below:
Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.
To confirm, you requested to withdraw the excess Roth contribution plus earnings.
If yes, then during the IRA contribution interview you can enter that you withdrew the excess contribution on the "You Currently Have a Penalty" screen. Enter the $7500 excess contribution as withdrawn and then TurboTax will not calculate the 6% penalty.
You will get a 2024 Form 1099-R in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:
To create a Form 1099-R in your 2023 return please follow the steps below:
Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.
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