How to report withdrawal of non-deductible traditional IRA contribution

[GRogers1]

Wasn't aware of the income limits for making a deductible traditional IRA contribution until filing my taxes last year.  I withdrew the prior contribution because I thought I could do so freely since the contribution was non-deductible.  Is that correct?

Now I need to report that withdrawal because I received a 1099-R.  How in Turbo Tax desktop Premier version do I report that the withdrawal/distribution should be tax free?  Assuming I'm correct that I should be able to withdraw it freely since I got no tax break from the contribution.

Thanks for any help.

[DanaB27]

To confirm, did you just take a regular distribution or did you request the return of your contribution? What code is in box 7 of your Form 1099-R?

If you requested the return of a contribution for 2022 in 2022 then only the earnings withdrawn will be taxable but returned contribution won't be.

But if you requested a regular distribution and had also pre-tax contributions in your traditional IRA then the pro-rata rule applies. This means that with each distribution/ conversion, you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. Therefore, each distribution/conversion in the future will have a taxable and nontaxable part until the basis is all used.

For a regular distribution, you will need to enter the nondeductible traditional IRA contribution:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter Form 1099-R:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. On the "Review your 1099-R info" screen click "Continue"
5. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
6. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[GRogers1]

I wish I had researched ahead of time.  I did not know there was an option to have the contribution returned.  That sounds like what I needed to do.  Box 7 Distribution Code = 7.

Thanks so much for your help!

[GRogers1]

@DanaB27 , thanks again for your help.  To clarify, I made the traditional IRA contribution for tax year 2021.  Later filed my taxes and realized due to income, it was non-deductible.  I made the withdrawal/distribution in tax year 2022.

[Hal_Al]

You had until April 15, 2022 to get a return of contribution for a 2021 IRA contribution. 

Contact you IRA custodian to see if you can get them to reclassify the distribution as a return of contribution. 

[GRogers1]

Thank you - I will try that.