Overcontributed to Roth IRA in 2020, withdrew excess in 2021 by tax deadline but won't be receiving 1099R until next year

[SephSFX]

Hi everyone,

I'm currently in the process of filing my taxes and realized that I contributed an excess of $3800 over my allowed limit for tax year 2020. This contributions were made on year 2020 and I have just withdrawn them before the tax deadline this year in 2021, along with around $270 in gains.

Since I made the withdrawals this year, I won't be receiving a 1099-R until next year, so I'm really confused on how I should be paying taxes for the income generated by the excess contribution. I've done some research online and it seems that I should use one of distributions codes J8 or JP.

I'm currently inputting this information into TurboTax, if I choose distribution code JP and mention that the form I will be receiving has a year of 2021, then TurboTax makes the assumption that I will have to pay a 6% penalty for the $4070 total removed plus 10% in early withdrawal on the $270 gains (I believe this is wrong since the excess was removed by the deadline). If I choose year 2020, then the additional tax I have to pay is only 10% of the $270 in gains.

My assumption is that I should choose year 2020 and code JP since I have withdrawn any excess contributions in time, but I've read some conflicting information about choosing the the year when the removal was made when TurboTax asks "Which Year on Form 1099-R? Look at the year on your Form 1099-R. Does it show 2020 or 2021?"

One thing I'm confused about is that if I choose 2020, it tells me I may need to amend my 2019 return.

I would greatly appreciate it if someone could help me out.

[DanaB27 · Accepted solution]

Yes, you will get a 1099-R 2021 in 2022 with codes P and J for the withdrawal of excess contribution and earnings . This 1099-R will have to be included on your 2020 tax return and you have two options: 

• You can wait until you receive the 1099-R  2021 in 2022 and amend your 2020 return or
• You can report it now in your 2020 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 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2020?"
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 P and J 
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

Only the earnings will be included in your taxable income and if you are under 59 1/2 then you will have to pay the 10% early withdrawal penalty on the earnings as well.

Please make sure that you enter the amount of excess contribution ($3,800) that you withdrew by the due date in the IRA contribution section when you get the penalty screen. Otherwise TurboTax will still calculate the excess contribution penalty on the $3,800.

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"

Also, please be aware that if your contribution was limited by your modified adjusted gross income (MAGI) the earnings included in your income will increase your MAGI again.

[SephSFX]

I'm currently using the Windows version of TurboTax but I think I figured out why it was calculating a 6% penalty on the $3800 I already withdrew.

I entered a $6000 contribution for 2020. When asked for 'Enter Excess Contributions: Your Excess Roth IRA Contribution for Prior Years' I had entered $3800. I assume prior years refers to tax years 2019 and earlier and should not include the excess contribution made in 2020. In the next 'You Currently Have a Penalty' screen, I should input $3800 as the amount for "Contribution Withdrawn Before Due Date of Your Return"

Does this sound right?

[DanaB27]

For the question "Enter Excess Contributions: Your Excess Roth IRA Contribution for Prior Years" only enter an amount here if you had excess contributions in 2019 and prior years that you did not withdraw by December 31, 2020.

You stated that the excess contribution was on your 2020 contribution and did not mention excess contributions from prior years therefore you do not enter any amount on the "Enter Excess Contributions" screen.

On the penalty screen enter the amount of excess contribution withdrawn by the due date ($3,800).

[Flooblecrank]

For this technique of creating your own 1099 now in anticipation of receiving the real 1099 in 2022, how do I know the Payer information to plug into TurboTax? It won't let me submit without entering it. I did not receive one in previous years from this brokerage (Charles Schwab).

[Kellystaxes]

Hello,

This thread is very helpful to me in my current situation. Thank you so much!

I also over contributed in 2020 for 2020 tax year. I withdrew after filling 2020 taxes but I did withdrew before the filing deadline. I received 1099R in Jan 2022, this year! I have a few questions if you can help answer them.

1] I understand the earning will be taxed but can I report this earning as a 2021 income since I actually didn't cash it or withdraw until May 2021? I am afraid if I amend my 2020 tax return, the gross income for 2020 will increase again and the whole "bad " cycle will start again, and amount needed withdrawing from Roth contribution for 2020 will need to recalculated.  This is a nightmare! Why do I have to report the earning receive mid year 2021 on 2020 tax return in this situation? 

2] I did  withdraw the excess amount after filing 2020 tax but I completed the withdrawal before the general 2021 filing deadline, I'm assuming I dont need to pay the 6% penalty?

3]how do I pay the 10% penalty on the earing part as a early withdraw penalty? I cannot get turbo tax to add this penalty to my 2021 tax return.

Thanks,

Kelly

[DanaB27]

1. No, you need to report the earnings in the year for which you made the contribution, that is how the law is written. Therefore, you will have to report the earnings on an excess contribution for 2020 in 2020. 

Yes, if your Roth contribution was limited by your Modified Adjusted Gross Income (MAGI) then the earnings will increase your income, and then you might have another excess contribution. That is why it is recommended to withdraw some extra if you had a lot of earnings. If you have this issue that you have a new excess contribution after adding the earnings then you can make just a regular distribution (without the earnings) since it is after the due date of the 2020 tax return. This distribution would be reported on your 2022 tax return but it would not be taxable. You would have to pay the 6% penalty on this new excess for 2020 and 2021.

2. Yes, you do not need to pay the 6% penalty on the original excess since you withdrew that excess plus earnings before the due date of the 2020 tax return. But if the earnings of the original excess contribution create a new excess contribution then you will have to pay the 6% penalty on the new excess contribution for 2020 and 2021.

3. You should only have to enter your Form 1099-R. The earnings should be listed in box 2a. TurboTax should automatically calculate them on Form 5329 part I. What is the code on your Form 1099-R?

1. Click on the "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R”
3. Enter you Form 1099-R
4. Click "Continue"
5. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
6. Click "Continue" after all 1099-R are entered and answer all the questions.

@Kellystaxes

[Kellystaxes]

Thank you for replying! 
I have another question which is a separate situation but kinda related too: The IRS says that you can apply the excess contribution in one year to a later year as long as the total contributions for that later year are less than the contribution limit for the year. If that’s the case can move 2020 excess to 2022 contribution? I haven’t contributed any for 2022 but did meet limit for 2021.  So moving to 2021 is not an option. That’s why I’m wondering if I can move excess from 2020 to 2022 and if that’s allowed how do I go about doing that? What is the impact on the tax returns? Do I still pay a penalty? What about the earnings part of the excess?

[DanaB27]

Yes, you can apply the 2020 excess contribution to 2022 on your 2022 tax return. But you will have to pay the 6% penalty for 2020 and 2021. The earnings will just stay in the account.

To trigger the penalty for 2021 on 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. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 (if it wasn't carried over).

Please follow these steps on your 2022 return to apply the excess to 2022:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 (if it wasn't carried over).
6. On the "How Much Excess to 2021?" screen enter how much you want to apply to 2022.

@Kellystaxes 

[Kellystaxes]

How can I trigger 6% penalty for the 2020 year on the 2021 return?

also for step 6, On the "How Much Excess to 2021, I do not have excess for 2021 I’m moving excess from 2020 to 2022. How do complete this on the 2022 return?

thanks!

[DanaB27]

To trigger 6% penalty for the 2020 excess contribution on the 2021 return (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. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 (if it wasn't carried over).

Since the excess wasn't removed the excess will be carried to 2021 and therefore TurboTax will ask for step 6 "How Much Excess to 2021?". A better wording might be how much of the prior year excess do you want to apply to 2022.

@Kellystaxes

[SephSFX]

I finally received my 2021 1099-R and was getting ready to amend my 2020 tax return through TurboTax.

I was going application filling in the information in the 1099-R form which has a gross distribution of $4,000, a taxable amount of 0 and no checkboxes in section 2B. The distribution code is 'PJ' which is expected. TurboTax asked me to write the reasoning for the amended return. When I got to the end, and clicked to save a Copy of the amended tax return, I didn't see the 1099-R that I filled in.

Should I be appending a copy of the 1099-R I received along with the TurboTax package?

[DanaB27]

Yes, you include Form 1099-R with your 2020 amended return.

@SephSFX

[taxes4739]

Thanks for your super helpful answers about this @DanaB27 

I'm in a similar situation to the original post this year (overcontributed in 2022, withdrew before the filing deadline in 2023, am trying to include the 1099-R values on my 2022 return even though I've not yet actually received the 1099-R from my brokerage).

Two questions, if you wouldn't mind:

1) If there is a loss (not earnings), am I to put a negative value in box 2a, or "zero"?

2) For Box 7, I understand that I should select P and J. However, TurboTax's description for P is "return of contribution taxable in 2021." This strikes me as odd, as there is nothing involving 2021 here: the overcontribution was made in 2022, for 2022 tax year, and withdrawn in 2023. So what does this have to do with 2021? Is "P" incorrect here? Or is this just a Turbotax bug?

Thanks very much in advance

[taxes4739]

Nevermind, found your answers on another thread:

* For a loss, enter $0 on 2a

* For the message in the dropdown for code P, just ignore it, since it asks you in a follow-up question about the year

Thanks again!