Roth conversion and excess contribution due to no earned income.

[ghoefert]

In early 2020, I made a $6,000 contribution to my traditional IRA and then did a Roth conversion.  My intent was to complete a backdoor Roth IRA, which I had done in years past.  Later on, I divorced in 2020 and realized I would have no earned income, so I needed to remove my entire $6,000 contribution as it was an excess contribution.  I removed it from the Roth IRA (including earnings/loss), since I didn't have a balance in my traditional IRA.

Now I received two 1099-R for the Roth conversion.  One showing the full $6,001 (amount of the Roth conversion) with code 2 entered in box 7.  The other on the Roth account showing the amount of the excess removal with code 8J in box 7.

When I enter all of this into TurboTax, the entire $6,001 is being included in my taxable income.  I never was able to take a deduction for this contribution and don't believe I should be taxed on this amount.  I could use some help clarifying/remedying this situation.  Please help!

[ThomasM125]

You said that you made a contribution to your IRA in 2020, then converted it to a ROTH IRA. If you didn't designate the contribution as being non-deductible, then the distribution of it will be taxable. To account for this, you need to enter that on your 2020 tax return as a deductible IRA contribution, and in so doing, the deduction will counteract the distribution for the ROTH conversion, and you will end up with $0 income on the whole deal.

So, enter an IRA deduction of $6,000 and a pension distributions of $6,000, so the net income will be $0.

[ghoefert]

I don't know how to enter a $6,000 deducible contribution since I had no earned income for 2020. The reason for the distribution was an excess contribution due to no earned income. Please help me clarify. 

[ReneeM7122]

Here is how to back out the excess contribution:

• Enter the 1099-R with the total distribution in box 1 [the contribution plus the earnings]
• Enter the earnings in box 2a
• Enter code "P" in box 7 (Top) 
• Enter code "J" in box 7 (Bottom).
• On the "Which year" screen say that this is a 2020 1099-R.

If you contribute more than the IRA or Roth IRA contribution limit, the tax laws impose a 6% excise tax per year on the excess amount for each year it remains in the IRA. .The IRS imposes a 6% tax penalty on the excess amount for each year it remains in the IRA.