For tax year 2020 I contributed after-tax dollars to a Roth IRA account to later find out I was not eligible to make this contribution. To avoid the 6% I reached out to the brokerage company in 2021 and have already withdrawn the contributions along with the earnings on them. They informed me I would receive a 1099-R in 2022 that indicates this access contribution removal, but I should report the earnings as income on form 1040, and fill out form 5329 for my 2020 return. This leads me to a few questions:Is the advice on what forms to complete correctly?If the answer to 1 is "Yes", how can I achieve this using TurboTax Premier 2020 Desktop VersionSince I am under the age to make withdrawals I believe I owe a 10% penalty on the earnings. Where should this be reported?Within the federal deductions & credits section, I see an option to report contributions to a Roth IRA. Should I complete this questionnaire even though they have been withdrawn, and will this ultimately complete form 5329 and other needed forms for me on the backend?Thanks in advance for the help!

You will get a 1099-R 2021 in 2022 with codes P and J. 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: Open your return Click on the "Search" on the top and type “1099-R” Click on “Jump to 1099-R” Select "I'll type it in myself" Box 1 enter total distribution (contribution plus earning) Box 2 enter the earnings Box 7 enter P and J On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R. Yes, you will have to pay the 10% penalty on the earnings. This will trigger Form 5329 in TurboTax. Yes, enter the Roth contribution and withdrawal of excess contribution in the Deduction & Credit section. Click on the "Search" on the top and type “IRA contributions” Click on “Jump to IRA contributions"

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Solved

Reporting excess Roth IRA Contribution

Forum|Forum|5 years ago
February 10, 2021
1 reply
0 views

For tax year 2020 I contributed after-tax dollars to a Roth IRA account to later find out I was not eligible to make this contribution. To avoid the 6% I reached out to the brokerage company in 2021 and have already withdrawn the contributions along with the earnings on them. They informed me I would receive a 1099-R in 2022 that indicates this access contribution removal, but I should report the earnings as income on form 1040, and fill out form 5329 for my 2020 return.

This leads me to a few questions:

Is the advice on what forms to complete correctly?
If the answer to 1 is "Yes", how can I achieve this using TurboTax Premier 2020 Desktop Version
Since I am under the age to make withdrawals I believe I owe a 10% penalty on the earnings. Where should this be reported?
Within the federal deductions & credits section, I see an option to report contributions to a Roth IRA. Should I complete this questionnaire even though they have been withdrawn, and will this ultimately complete form 5329 and other needed forms for me on the backend?

Thanks in advance for the help!

Best answer by DanaB27

You will get a 1099-R 2021 in 2022 with codes P and J. 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:

Open your return
Click on the "Search" on the top and type “1099-R”
Click on “Jump to 1099-R”
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2 enter the earnings
Box 7 enter P and J
On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

Yes, you will have to pay the 10% penalty on the earnings. This will trigger Form 5329 in TurboTax.

Yes, enter the Roth contribution and withdrawal of excess contribution in the Deduction & Credit section.

Click on the "Search" on the top and type “IRA contributions”
Click on “Jump to IRA contributions"

DanaB27Answer

Level 15

You will get a 1099-R 2021 in 2022 with codes P and J. 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:

Open your return
Click on the "Search" on the top and type “1099-R”
Click on “Jump to 1099-R”
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2 enter the earnings
Box 7 enter P and J
On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

Yes, you will have to pay the 10% penalty on the earnings. This will trigger Form 5329 in TurboTax.

Yes, enter the Roth contribution and withdrawal of excess contribution in the Deduction & Credit section.

Click on the "Search" on the top and type “IRA contributions”
Click on “Jump to IRA contributions"

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chy105

Level 2

I have the same problem but I have already reported my excess contribution in my 2020 tax return. Does that mean that I can ignore the 1099-R form for 2021 while filing the 2021 taxes? Nothing shows in box 4 or 14. There is no withholdings on my 2021 1099-R form, only codes P and J.

bigslimdog

Level 2

@bigslimdog wrote:

Hello again,

I elected to have 10% withheld at the federal level by my Roth IRA custodian on the removal of excess form. I understand I will need to enter this withholding amount when I fill out the 1099-R on my 2022 tax return, but should I also fill in this same withholding amount on my mock 1099-R on my 2021 return now? I tried adding the withholding amount to the mock 1099-R as a test, and it did not seem to affect my 2021 tax due in any way.

My second related question is, must I pay the 10% early withdrawal penalty now with my 2021 return? It seems that TT is in fact adding the penalty to the amount I owe. I thought that by having the tax withheld by my custodian, I could avoid having to pay it myself with my 2021 return, but perhaps this is not true. I'm wondering now if I should have elected to do no withholding. If you can clarify, I would appreciate it.

Thank you.

#1) It makes no difference. TurboTax will ignore any box 4 withholding on a 2022 code P entered in 2021.

#2 Withholding has nothing to do with the early distribution penalty.

Thanks, @macuser_22.

The next difficulty I am facing is that TT seems to be including the entire amount of the Roth IRA corrective distribution (contributions + earnings) as taxable income on my 2021 New Jersey return. This doesn't seem correct, as the contributions are also taxed as income on the same return (i.e. they're getting double-taxed). How should I fix this?

Per earlier instructions in this thread, I entered the state distribution amount (Box 16) of the 1099-R as the total (contributions + earnings)--the same as Box 1.