Okay so I have the 1099-R's in my 2021 return, even though they're applicable for the 2020 tax year, however I now have a concern:
I'm currently at the stage where I've paid for the TurboTax filing service but have not actually e-filed yet. I was just given the option to see the final forms prepared by TurboTax, which would be e-filed. In these forms, I see 2 forms 5329 attached, each of which mention $6000 as 'excess contributions' in 2020 for my and my wife's Roth IRA accounts. I think *technically* this isn't correct since as per the IRS, if I make excess contribution but then I withdraw it and it's associated earnings before filing taxes for the year in which the contributions were made (2020 in my case), then it would be as if those excess contributions were not made to begin with.
I'm concerned here because this section of the form 5329 says:
"Complete this part if you contributed more to your Roth IRAs for 2021 than is allowable or you had an amount on line 25 of your 2020 Form 5329."
The first statement isn't true since I didn't make any contributions in 2021, and the second won't be true even after my 2020 amended return since the net 2020 contributions would be $6000 (initial excess contribution) - $6000 (withdrawn before filing 2020 tax return) = $0. So I think my 2020 amended return won't even include any form 5329 to begin with - just the earnings would be taxed as normal.
So what should I do about this ? Should I remove these 1099-R's from my 2021 tax return, and/or change anything else ?
Please note that I'll be filing my 2020 return amendment in the next few weeks, which will include these 1099-Rs too in any case.
Yes, it seems that the excess contribution got carried over. But you do not have an excess contribution since you removed it before the 2020 due date. Please follow these steps to delete the wrong excess contribution entry:
- Click on "Search" on the top right and type “IRA contributions”
- Click on “Jump to IRA contributions"
- Select “Roth IRA”
- On the "Enter Excess Contributions" screen delete the excess contribution from prior years.
- Repeat for your wife
You might want to check if you have the excess contribution penalty on your 2020 return (Form 5329 part IV. If you do have the 6% penalty, then follow these steps to remove it:
- Click on "Search" on the top right and type “IRA contributions”
- Click on “Jump to IRA contributions"
- Select “Roth IRA”
- Continue until you get to the penalty screen and enter the contribution amount $6,000 as removed by the due date.
Please be aware, if you are under 59 ½ then you will have to pay the 10% early withdrawal penalty on the earnings on your 2020 tax return (calculated on Form 5329 part I. If you are over 59 ½ in 2020 then please follow these steps when you enter your 2021 Form 1099-R codes PJ on your 2020 tax return:
- Click on the "Search" on the top right and type “1099-R”
- Click on “Jump to 1099-R”
- Answer "Yes" to "Did you get a 1099-R in 2021?"
- Enter you Form 1099-R
- On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.
- Click "Continue" after all 1099-R are entered and answer all the questions.
- Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")
@ahmadka2
