Excess Roth IRA Contribution

[jpalanca69]

It appears that the Roth IRA contribution I have already made for 2020 is not allowed because of my AGI.

The online help says, "If a Roth IRA contribution is allowed next year (or any future year), excess contributions can be applied up to the contribution limit for that year and no longer subject to the penalty."

Does this mean I can leave that contribution out of this year's returns and use it next year instead?

If I have to withdraw that amount instead, how do I calculate how much money was made by that contribution only.  Will Vanguard be able to tell me that?

[MarilynG1 · Accepted solution]

No you would still report your Roth IRA Contribution made in 2020.  If you apply your Roth Excess Contribution to next year, you won't pay a penalty next year.  You will still be subject to penalty this year.

If you decide to withdraw your excess contribution, Vanguard will be able to tell you the amount of earnings you had on that amount so you can remove the excess plus earnings. They will issue a 1099-R for 2021, and you will not pay a penalty in 2020. 

Click this link for more info on Excess IRA Contributions

You can create a 1099-R in your 2020 return to report the removal and avoid amending your 2020 return when you receive the 2021 1099-R. 

Per @macuser_22:

"*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 2020.

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.

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 2020 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."

[Uberczar]

I had the same problem.  Contributed $7000 but ended up having AGI too high so I withdrew excess contribution but won't get a 1099-R from Fidelity until later.  I did get a letter from Fidelity with the relevant numbers.  So it is OK for me to "make my own 1099-R" with that data from that letter per instructions in your reply?  Mark box 7 with P and J, select 2021, etc.  ?  The enter your data EXACTLY as it appears had me worried.  Thanks.

[ThomasM125]

@Uberczar That is correct, to reiterate:

To report the earnings on the excess contribution, you should enter a Substitute form 1099-R. You will see an option for this when you see the screen Tell us Which 1099-R You Have. 

Enter in box 1 the distribution amount. In box 2 enter the earnings. Enter code "P and J" in box 7. Work through the questions in TurboTax after you entered the 1099-R until you see a question regarding why you made the distribution, to which you will respond it was a return of an excess contribution.