Turbo Tax 2023 - Form 5329 Question

[Cinna13604]

Background: My husband's RMD for tax year 2023 got missed/messed up by the investment firm. To give an example, he had a Solo 401k and a traditional IRA. Using some hypothetical numbers, RMD from Solo 401k was supposed to be $1000 and $2000 from Traditional IRA for a total of $3000. 

RMD from Solo 401k wasn't distributed and in that regard based on my research I discovered I can file form 5329.  Turbo Tax asked the applicable question and eventually landed me in Form 5329 so I can fill the reason for the waiver (Section IX - Section 9). When I review the filled form, Turbo Tax shows these lines for Form 5329...

Line 52: Minimum Required Distribution for 2023 - 3000

Line 53: Amount Actually Distributed to you - 2000

Then the small box that shows Waiver of Smart Tax Worksheet properly shows the amount for which Waiver applies as: 1000 

Line 54: Subtract Line 53 from 52. If Zero or less, enter 0 - but here Turbo Tax has entered a 1. 

Line 55 Additional Tax shows 0. 

Here are my questions:

A. Shouldn't line 54 be 1000? Why is it showing 1?

B. Is the form 5329 for waiver of penalty (for not taking the RMD in the above case) OR is it waiver of the tax on that $1000?

C. I tried to Ctrl-D in box 54 and entered 1000 myself but Turbo Tax flags it as an error.

D. If I want to pay tax on that $1000 (because subsequently in January 2024 the investment firm processed that $1000 as excess contribution removal plus $10 as earnings on that $1000), where/how would I report in Turbo Tax?

[ThomasM125]

Line 54 should be $1,000. It may be that you need to re-boot your computer or clear your cache and cookies to get the form to populate properly. It is also possible that it is an error on TurboTax's part, as it is early in the tax season for pension related issues. If so, it will clear up in a short period of time. If you are using the desktop version of TurboTax, make sure you do the updates.

The waiver is for the 25% excise tax on the RMD deficiency amount. It is technically a tax, not a penalty.

You can prepare a substitute form 1099-R to report the interest income in 2023 as follows:

1. Go to the personal income section of TurboTax 
2. Find the Retirement Plans and Social Security menu option
3. Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
4. Choose Add Another 1099-R
5. Choose I'll type it in myself
6. On the screen that says Tell Us Which 1099-R You Have choose I need to prepare a Substitute 1099-R
7. Enter the distribution amount in box 1 of the substitute 1099-R
8. Enter the earnings in box 2(a)
9. Enter code "P" in box 7
10. Indicate that the 1099-R form is for tax year after the one you are filing for 

[Edited 1/29/24 at 1:58 EST] @CINNA 

[Cinna13604]

Thank you for your answers. Here are some follow-up comments and questions.

A. I already ran the disk cleanup, deleted all the cookies etc. and rebooted the laptop and tried but the issue of $1 showing up on Line 54 persists. Interestingly on Line 54 where additional details are shown such as a button for the explanation, a code like RC, the amount there correctly shows $1000, it just doesn't populate in the line 54 box and because of it, Line 55 doesn't calculate the taxes. Looks like a bug in Turbo Tax 2023. How do I report this to ensure the problem is fixed?

B. Let's say I create a Form-1099 R myself for 2023, if I use distribution code of P (as you suggested), is that distribution code considered for "prior year" (i.e., 2022) or for 2023 (current year)? 

C. Further, the investment firm has already said that for tax year 2024, they will issue a Form-1099 R for that excess contribution/earnings removal with a code 8...Am I going to be taxed again for that $1010 in 2024 (although using (B) above, I would have paid taxes in 2023 itself)?

Thanks again,

[ThomasM125]

I'm not sure what to do about the display issue other than using the help option on your screen to talk to a representative. They will either resolve the issue or escalate it so that someone will contact you with a resolution.

You shouldn't pay any tax in 2024 if you pay the tax in 2023. I know the codes are confusing, but I believe your broker may use code 8 in 2024, as they don't know when you report the income so they may assign it to 2024 when the distribution is made. But it seems they should use code P since the income belongs in 2023 as that is when the overpayment occurred. Maybe they will use code P, you may need to wait and see. You are using the code P this year, as you indicate that the 1099-R you are reporting is for 2024 when asked about it in TurboTax, so the distribution applies to the previous year, or 2023 in this case.