[Solved] 1099-R 8J getting hit with 10% penalty...

[taxun]

I have a 1099-R coded 8J and it's my understanding that this removal of excess should be exempt from the 10% penalty.

After reviewing the form, I'm back at the main "Here's your 1099-R info", I click continue...

No disaster distributions... ok next screen...

"Let's see if we can reduce your early withdrawal penalty"

Wha? I thought TT would be smart enough to realize this was a removal of excess?

It now asks me to "Identify the Plan"

My three options are "Qualified retirement plan", "Nonqualified annuity", and "Modified endowment". Well, according to google a Roth is NOT a "Qualified retirement plan", but it literally said I HAD to pick one, so that's what I picked...

On the next screen "These Situations May Lower Your Tax Bill..." "If you used the money you took out of a retirement account (other than an IRA)...", there is a list of couple dozen reasons like "Death" or "Incorrect Early Distribution", but no option for "Removal of Excess".

Again it feels like maybe I am on the wrong screen because I was FORCED to select "Qualified retirement plan" on the last screen. There is no indication that this is for a ROTH.

The next screen warns me "We Were Unable to Lower Your Tax Bill". Showing what looks like the [2a] taxable amount on the 1099r 8J is getting hit with the 10% penalty.

The next screen "Explain the Return of Contribution", I have a box to "Explain here the details", so I typed in "Remove an Excess Contribution".

I don't think that did it, still saying I owe 10% of the [2a] taxable amount.

Please halp!

[DanaB27]

To clarify, do you have also a 2024 Form 1099-R with code PJ entered? If yes, this is a issue we are currently working on.

If you do not have taxes withheld on the 2024 Form 1099-R with code PJ then delete this form since you do not need to report it on your 2024 return. You will have to report it on your 2023 return. Please see How do I amend my federal tax return for a prior year?

 After deleting Form 1099-R with code PJ you should see the correct follow-up screens:

1. Click "Continue" on the  "Your 1099-R Entries" screen after deleting Form 1099-R with codes PJ and entering Form 1099-R with codes 8J
2. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

If you have taxes withheld on the Form 1099-R with code PJ then please try this workaround:

1. Delete the Form 1099-R with codes PJ 
2.  Click "Continue" on the  "Your 1099-R Entries" screen after deleting Form 1099-R wit codes PJ and entering Form 1099-R with codes 8J
3. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".
4. Continue until you are back at the "Wage & Income" screen and click "Update" next to  "IRA, 401(k), Pension Plan (1099-R)"
5. On the "Your 1099-R Entries" screen select "Add another Form 1099-R"
6. Enter Form 1099-R with code PJ
7. Continue until you get to the "Your 1099-R Entries" screen then click "Wages & Income" to get back to the Wages & Income screen

[taxun]

> "To clarify, do you have also a 2024 Form 1099-R with code PJ entered? If yes, this is a issue we are currently working on."

Yes! I do have a second 1099-R coded PJ. It was for a removal of excess of exactly 6500 form my 2023 contribution, with [1] Gross distribution of 6500 and [2a] Taxable amount of ZERO (since both removals occurred in 2024, the earnings were combined onto my 1099-R 8J).

So it is safe to remove this PJ, ok. Do I even need to amend my 2023 since there is no taxable amount?

And just to clarify, on the "Did you use your IRA to pay for any of these expenses?" for "Corrective distributions made before the due date of the return" do I enter the [1] Gross distribution or [2a] Taxable amount (from the 1099-R 8J)?

[taxun]

Ok so my "Wages & Income" section looks good now (I see the 1099-R 8J and I added the [2a] Taxable Amount to the "Corrective distributions made before the due date of the return". It's not warning me about a 10% penalty anymore.

Now in the Deductions & Credits section it's asking me to "Enter Your Roth IRA Contributions"... I assume I should just put 0 for all of this? Since technically I made no contributions this year (they were all removed). I went ahead and said 0.

A few screens later it asked me to "Enter Excess Contributions", so once again I said 0.

Then another screen titled "Contributions Withdrawn Before the Due Date", again I said 0.

And the final screen "Your IRA Deduction Summary" has a "Your IRA Deduction" of $0.

I guess all those questions were just to determine if I qualify for any tax breaks from contributions (of which there are none), right?

[DanaB27 · Accepted solution]

Yes, you enter the earnings from box 2a for "Corrective distributions made before the due date of the return".

Yes, you can enter $0 for Roth IRA contributions since you withdrew them all. Another option is to enter the Roth IRA contribution and then enter on the penalty screen that you withdrew the excess contribution by the due date.

Since you have $0 earnings on your Form 1099-R with code PJ you do not need to amend your 2023 return. Only earnings would be taxable. Therefore, your 2023 return would not change and TurboTax would only add an explanation statement to your 2023 return.

[taxun]

Taxes filed!

Thanks Dana you're the best!