Excess Roth IRA Contribution and NIA

Forum|Forum|7 years ago
March 28, 2019
1 reply
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I made an excess Roth contribution for 2018. I could use some help since I’ve received some conflicting advice. I was told that the money I earned on the excess Roth would not fall under an early distribution. I am younger than 59 1/2. Would the NIA be taxed as ordinary income or as an early withdrawal penalty?

In February 2019, I removed the excess contribution of $6499 and the earnings (NIA) $315.27 for a total of $6814.27. I have not yet filed my taxes for 2018. Since I won’t get a 1099-R from Vanguard until next year, my understanding is that I can make one up in Turbo Tax for 2018 and then ignore the one I receive next year.

On the 1099-R I put the following;

Line 1 Gross Distributions $6814.27 (excess contribution $6499 + NIA $315.27)

Line 2a Taxable amount $315.27 (NIA)

Box 7 – 1st Code 8 - Return of contribution taxable in 2018

2nd Code J - Early distribution from a Roth IRA

Checkbox IRA/SEP/SIMPLE is marked with an x

Form 5329-T shows

Line F -Column A - Roth IRA distributions (less qualified disaster distributions) $315

I then filled out a 5329-T Explanation form. In the form I stated the dates and amounts of the excess contribution and the withdrawals.

Does this look correct?

macuser_22

Employee

*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2018 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal Roth distribution - then:

You can just report it now and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 12 State withholding. Then you must also enter the 2019 1099-R into the 2019 tax return since the withholding is reported in the year that the tax was withheld. The 2019 code P will not do anything in 2019 but the withholding will be applied to 2019.

You would enter the 1099-R with the total distribution in box 1 (the contribution plus the earnings),

The earnings in box 2a,

Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2017 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2019 1099-R.

After the 1099-R summary screen press continue.

If you are over 59 1/2 then on the "Lets see if we can lower your tax bill" enter the box 2a amount in the "Another Reason" box to eliminate the 10% early withdrawal penalty on the earnings.

Enter the explanation for the excess contribution and that you are reporting a 2019 1099-R on your 2018 tax return to avoid having to amend in 2019.

The box 2a earnings will be taxable income reported on line 4b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form that will be reported on line 59 on the 1040 Schedule 4 form.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

J

Jimbo1960Author

Employee

In box 7, why would I use code P - return of contribution taxable in 2017, instead of 8 - return of contribution taxable in 2018?

macuser_22

Employee

You use code P because the excess was returned in 2019, you will get a 2019 1099-R, not a 2018 1099-R.

For 2019 returned excess a code 8 would indicate that it was a 2019 contribution returned in 2019, but is is a 2018 contribution returned in 2019 so a code P indicates that to TurboTax and the IRS. That is why the TurboTax interview asks if it is a 2018 or 2019 1099-R - you say 2019.

1099-R code P year.jpg

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**