Withdrawing excess Roth IRA contribution

[CandP507]

I deposited $6,000 into my Vanguard Roth IRA in early 2019. I also got married in late 2019 and when we filed taxes for 2019, we realized that our joint income was too high. When we realized that my Roth IRA contribution was not allowable, we withdrew $6500 (the $500 being the estimated interest generated from the original Roth contribution). I believe we did not report the Roth IRA contribution on our 2019 taxes. If I understand there is a penalty for my Roth IRA mistake. Can anyone indicate how I take this into account for my 2020 contributions?

Thank you! 

[ThomasM125]

If you took the distribution in 2020, you should have received a 1099-R reporting the distribution in 2021, recently. That form should have a code "P" in box 7 which would indicate that the distribution should be reported on your 2019 tax return. 

So, you need to amend your 2019 tax return and report the 1099-R on it. You should have the taxable portion of the distribution listed in box 2 on the form 1099-R.

[CandP507]

@ThomasM125 Thank you for your response. I did not get a 1099-R and I realize that I think I inaccurately described my situation. My apologies!

I've rewritten it here: 

I deposited $6,000 into my Vanguard Roth IRA in Jan 2019. I also got married in late 2019. Joint income was too high for Roth IRA contributions. I withdrew $7700 from my Vanguard Roth IRA in April 12, 2020 (the number may be high because I may have opted to withhold 33% for federal tax and 10% for state tax, but unfortunately I don't have any clear paperwork on what I did other than a transaction history). The Roth IRA contribution was not reported on my 2019 taxes (not listed on Section C: Adjustments to Income; 19: IRA deduction). The only confirmation that I made this withdrawal from my Roth IRA is through transaction history. I have a Form 5498 showing the initial $6000 contribution. I have not received any other paperwork.

Still unclear how to resolve this for good, thank you so much!!!

[macuser_22]

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@CandP507 wrote:

@ThomasM125 Thank you for your response. I did not get a 1099-R and I realize that I think I inaccurately described my situation. My apologies!

I've rewritten it here: 

I deposited $6,000 into my Vanguard Roth IRA in Jan 2019. I also got married in late 2019. Joint income was too high for Roth IRA contributions. I withdrew $7700 from my Vanguard Roth IRA in April 12, 2020 (the number may be high because I may have opted to withhold 33% for federal tax and 10% for state tax, but unfortunately I don't have any clear paperwork on what I did other than a transaction history). The Roth IRA contribution was not reported on my 2019 taxes (not listed on Section C: Adjustments to Income; 19: IRA deduction). The only confirmation that I made this withdrawal from my Roth IRA is through transaction history. I have a Form 5498 showing the initial $6000 contribution. I have not received any other paperwork.

Still unclear how to resolve this for good, thank you so much!!!

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Then contact Vanguard for a copy of the missing 1099-R.    They were required by law to issue it to you no later than Jan 31, 2021 for a 2020 return of contribution.      If you have an online account with them it will probably be available online.     Form 5489 is information only and does not go on a tax return.

[ThomasM125 · Accepted solution]

If the distribution was not reported on a form 1099-R, as it should have been, you can create a substitute form 1099-R to report it, by amending your 2019 tax return.

 To report the earnings on the 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 "8" and "T" in box 7. 

[CandP507]

@ThomasM125 @macuser_22 I called Vanguard. It turned out that I did not correctly remove the excess contribution. The excess contribution was successfully removed today. That is why I never got a 1099-R. Correct me if I'm wrong, but it sounds like I will not be able to resolve this until tax year 2021 and will pay a penalty then. That is fine. It is unclear if I need to amend my 2019 taxes at any point though? Thanks for your help! 

[macuser_22]

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@CandP507 wrote:

@ThomasM125 @macuser_22 I called Vanguard. It turned out that I did not correctly remove the excess contribution. The excess contribution was successfully removed today. That is why I never got a 1099-R. Correct me if I'm wrong, but it sounds like I will not be able to resolve this until tax year 2021 and will pay a penalty then. That is fine. It is unclear if I need to amend my 2019 taxes at any point though? Thanks for your help! 

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Unfortunately it is too late to remove a 2019 excess as a "return of contribution" - that would have to have been done before July 15, 2020.     

It can only be removed now as a normal distribution with a box 7 code J.  You report that on your 2021 tax return.  Since you are removing your own contribution it is not taxable.

HOWEVER;

Since it was an 2019 excess, you need to file a 2019 5329 form reporting the excess ans pay the 6% penalty.

Since the excess was still not removed by the end of 2020,  you also must claim the excess on a 2020 5329 form and pay another 6% 2020 penalty.

[CandP507]

@macuser_22 Thank you! So if I understand your statement correctly, I will file the 1099-R on my 2021 taxes and include this when doing taxes through Turbotax. I do not need to formally amend my taxes for 2019 and 2020, but I do need to pay the penalty though the 5329 forms (file one for 2019 and one for 2020) and I won't be able to do that until I get the 1099-R for 2021 and I will file the 5329 for each year and place into the mail? 

I'm fine with paying all the fees needed, I goofed up and I want to take responsibility. I just want to square it away correctly so I'm not penalized 6% for lack of action.

Thanks again!

[macuser_22]

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@CandP507 wrote:

@macuser_22 Thank you! So if I understand your statement correctly, I will file the 1099-R on my 2021 taxes and include this when doing taxes through Turbotax. I do not need to formally amend my taxes for 2019 and 2020, but I do need to pay the penalty though the 5329 forms (file one for 2019 and one for 2020) and I won't be able to do that until I get the 1099-R for 2021 and I will file the 5329 for each year and place into the mail? 

I'm fine with paying all the fees needed, I goofed up and I want to take responsibility. I just want to square it away correctly so I'm not penalized 6% for lack of action.

Thanks again!

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Yes, you need to amend 2019 and 2020 to include the 5329 form that will change the taxable amount for those years.    Amending is the only way to add the 5329 and adjust the taxable amount.

Amending to report the penalty is independent of the 1099-R to report the distribution.

[CandP507]

@macuser_22 I see, so I do need to amend my 2019 taxes and will need to amend my 2020 taxes (assuming I don't get the 5329 information prior to filing through TurboTax this year). If I filed my 2019 taxes through TurboTax with my husband, can I amend through TurboTax or should we amend by paper?  

You are amazing, thank you again for your help! 

[macuser_22]

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@CandP507 wrote:

@macuser_22 I see, so I do need to amend my 2019 taxes and will need to amend my 2020 taxes (assuming I don't get the 5329 information prior to filing through TurboTax this year). If I filed my 2019 taxes through TurboTax with my husband, can I amend through TurboTax or should we amend by paper?  

You are amazing, thank you again for your help! 

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2019 amended can only be mailed.

You already have the necessary information to amend 2019 and 2020 - it is the amount of excess (not including any gain or loss - just the amount of excess).

2019 and earlier can only be amended with TurboTax using the CD/download version installed on a PC or Mac computer.

2019 amended Federal returns can either be e-filed or mailed. 2018 and earlier amended returns can only be mailed. It is suggested that it be mailed certified with return receipt (or other tracking service) to verify that the IRS or state receives it.

See this TurboTax FAQ for detailed amend instructions:
https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

-- Amended returns can only be mailed - allow 8-12 weeks - can take up to 16 weeks (4 months) for processing.

You can check the status of the amended return here, but allow 3 weeks after mailing.

https://www.irs.gov/filing/wheres-my-amended-return

[CandP507]

@macuser_22 

Thank you! I was able to submit amended tax returns for 2019! Is there a way to pay the $6000 * 6% = $360 penalty for 2020 on this year's taxes without submitting them and then amending like I did for 2019? 

Thanks again!!!

[macuser_22]

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@CandP507 wrote:

@macuser_22 

Thank you! I was able to submit amended tax returns for 2019! Is there a way to pay the $6000 * 6% = $360 penalty for 2020 on this year's taxes without submitting them and then amending like I did for 2019? 

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Yes, if you have not file 2020 yet.  Just go through the IRA contribution interview and do not enter any 2020 contribution amount if you did not make one.  The it will as for prior years excess not removed.   Say it was not removed in 2020 and it should produce a 2020 5329 with the carry-over excess and penalty.