1099-R error on early distribution of Roth IRA

[LCoop]

I opened a Roth IRA in 2012 for $2,000 and closed out the account with an early, full distribution in 2021at age 34 because the returns were so bad and it had only earned $64 total net gains. My 1099-R shows $2,064 in the "Gross distribution" box, the "Taxable amount" box is blank, and the boxes are checked for "Taxable amount not determined" and "Total distribution", the Distribution code is "J", and the "1st year of desig. Roth contrib" space is blank.  The "Taxable amount" box should say $64, with these other boxes also corrected. I have statements from 2012 and 2021 to prove my taxable gains amount. I reached out to the financial company to correct, but have had no response. What form(s) do I need and how do I correct this in TuboTax (desktop)? Thanks!

[fanfare]

when you enter the 1099-R turbotax will ask you what were your contributions.

you say: $2,000.

[FangxiaL]

After you enter the 1099-R, on the screens that follow, you will have to enter if you owned the Roth IRA for five years and to enter prior-year Roth IRA contributions. After you enter the info, TurboTax will figure out the correct taxable income and penalty. See screenshots below:

@LCoop

[LCoop]

Thanks for your timely response. You're saying that I only have to  correct the information myself?  However, I was reading the "Learn more" on the screen that asks you if you need to file a "Substitute Form 1099-R".  So, I was wondering if, instead,  I need to check this box and do this?  Because, it says something about needing to file a a Form 4852 as a substitute if you've tried to get the payer to issue a corrected 1099-R and they won't. 

It says:

"Form 4852, Substitute for Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.

Substitute Form 1099-R

If your plan administrator doesn't give you Form 1099-R for 2021 (or the one you receive is wrong and your plan administrator refuses to correct it), do your best to obtain the form or correction before completing a substitute on Form 4852.

You'll be required to:

- describe your communications with the plan administrator in your attempt to get the form, and

- attest to the IRS that you were unable to obtain it.

Complete a Form 1099-R as if you actually received the correct form. Enter as much information about the payer as you can, including name, address, and the amounts for 2021. Then complete the information for the substitute form."

Thanks.

[fanfare]

You are not correcting information.

You are adding information.

Your 1099-R is already correct.

[LCoop]

Thank you Fangxial and Fanfare! Both of your answers are really great! The screen shots and your written responses were so helpful! 

[Jowanaman]

Hi!

I have a similar question regarding an error on my 1099-R as the result of an early distribution from my Roth IRA.

I contributed $11,000 to my Roth IRA and it increased in value over the years. I needed to take money out so I  initiated a distribution through my brokerage company and sold stock for $10,500 (making sure not to remove the gains). The 1099-R notes the $10,500 in Box 1, and 2b is marked 'X' 'Taxable income not determined'.

Then 'J' in Box 7 "Early Distribution from a Roth IRA" which then triggers a taxable event?

How do I indicate to the IRS that the transaction noted in the 1099-R is a simple removal of my initial contribution?

Do I need to have the brokerage company revise Box 7? 

Any help would be great!

[AnnetteB6]

Use the following steps to be sure that the Roth IRA basis information has been entered:

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner) 
• This opens a box where you can type in “Roth IRA” (be sure to enter exactly as shown here) and click the  magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to Roth IRA”
• Click on the blue “Jump to Roth IRA” link 

This will bring you to a screen with checkboxes to indicate what types of accounts you had in 2021.  Be sure that Roth IRA is checked.  Click Continue. 

If Traditional IRA is checked or if you have a spouse that had either type of account, the next questions will not pertain to your Roth IRA.  Continue through this section until you are asked whether you made any contributions to your Roth IRA for 2021.  This is the beginning of the section where you will enter details about your Roth IRA, including the basis.

Continue answering the questions according to your situation.  On the screen where you see Let Us Track Your Roth IRA Basis, click Yes. 

Then, on the screen titled Enter Prior Year Roth IRA Contributions, this is asking for your total contributions for years prior to 2021 (basis).  If your basis exceeds your distribution, then the distribution will not be taxable.  If the distribution exceeds your basis, then the excess will be taxable.

Finish the rest of the follow-up questions about your Roth IRA. 

@Jowanaman

[fluxquantum94]

Hello @AnnetteB6 

I had a follow question about this. 

Last year, I removed an early excess contribution to my ROTH IRA and therefore that essentially became an early distribution. The goal was to remove the excess ahead of time to avoid paying a tax penalty. I have a 1099-R for an amount of 260$ and took a loss and so I only got 237.04. I have a PJ code and the form is for 2022. I had the impression that I wouldn't be tax for any early distribution that took a loss from my ROTH IRA as that's a post tax account but turbo tax is calculating otherwise. Am I getting something wrong? Thank you for your time.

Edit*

I want to note that I had already reported this distribution in my 2021 tax year submission, if that changes anything.

+++++++++++++++++++++++++++++++++++++

[DanaB27]

Yes, if you had a loss with the return of the 2021 excess contribution then box 2a on your 2022 Form 1099-R with code PJ should be $0. Therefore, it isn’t taxable since only earnings are taxable on your 2021 tax return.

Yes, you correctly reported it in 2021. You don't need to enter the 2022 Form 1099-R with code PJ on your tax return unless you had taxes withheld. Then you will have to enter Form 1099-R to apply the withheld taxes to 2022. Code P will tell TurboTax to ignore the distribution but the withheld taxes are applied to your 2022 tax return.

@fluxquantum94