TurboTax Showing IRA Withdrawal as Taxable Income When They Are Not

[jmhayroe]

My husband contributed $6,000 to his Roth IRA in 2021 and withdrew it (plus earnings) in 2021.

I contributed $6,000 to my Roth IRA in 2021, recharacterized to a regular IRA, and then withdrew it (plus earnings).

I understand that the earnings are taxable income and subject to the penalty (we're under 59.5). However, TT is insisting that the $12,000 is taxable income. However, under the tax code, because we are just unwinding a same-year contribution it should not be. How to I fix this in TT without a manual override?

[DanaB27]

Please make sure you have entered the Roth contributions under Deductions & Credits. Here you will also enter the recharacterization:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

Also, please make sure you answer all follow-up questions after you enter all your 1099-Rs in regards to the Roth IRA and any basis in the traditional IRA:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top and type “1099-R”
3. Click on “Jump to 1099-R”  and enter your 1099-R
4. Click "continue" after all 1099-R are entered and answer all the questions.

If this doesn't help what are the codes in box 7? To verify, did you request the return of contribution with your financial institute, so they code it correctly?

[jmhayroe]

My husband's 1099-R for his Roth has codes 8 and J.

My Roth 1099 has code N - this amount is properly being excluded.

My IRA 1099 has codes 1 and 8.

[jmhayroe]

I have gone through the software numerous times. It asks me to report my contributions, but then it says do not enter the $12,643 here (the sum of my husband's and my withdrawals)

[DanaB27]

You will only enter the $6,000 Roth contribution for your husband and your $6,000 Roth contribution (do not enter earnings). For your contribution, you will answer the recharacterization questions.

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA” for your husband and you
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter your husbands Roth contribution amount of $6,000 
7. Continue until you get to your Roth contribution
8. Answer “No” to “Is This a Repayment of a Retirement Distribution
9. Enter your Roth contribution amount of $6,000 
10. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount of $6,000 (no earnings or losses)
11. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
12. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

To verify, when you look at Form 1040 it says $12,643 in 4a (distribution amount) and 4b (taxable amount).

For your husband's 1099-R code J and 8, what is the amount in box 1 and 2a? For your 1099-R with codes 1 and 8, what is the amount in box 1 and 2a? Only the earnings should be in box 2a.

[HYNES572]

Has this been resolved

[DanaB27]

Can you please provide more details about your situation?  Did you make nondeductible traditional IRA contribution and took a regular distribution? 

@HYNES572