Question

Excess Roth Contributions - Made in 2017, taken out in 2019

Forum|Forum|6 years ago
March 9, 2020
1 reply
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Hi - I am struggling with entering my Roth IRA info in turbotax, hoping for some guidance.

Background. While preparing my 2018 taxes in March of 2019 (joint return), I realized we made too much money to contribute to a Roth IRA starting in 2017 - and my wife and I had already made Roth contributions for 2017, 2018, and 2019 (doh!!). It was too late to re-characterize the 2017 contributions, but both the 2018 and 2019 contributions were re-characterized as non-deductible contributions to a traditional IRA. Then those amounts were transferred to Roth IRAs as "back door" Roth contributions.

I am struggling with how to report the 2019 distributions of the 2017 excess contributions. (I am also struggling with the re-characterizations, but will do a separate message on that if I can't figure it out!) Here are the details:

In March of 2019, we withdrew $6500 from each Roth IRA to correct the 2017 excess contributions. It is my understanding that in this "late correction" scenario, you only have to take out the excess amount contributed, not the earnings. Although the money came out in 2019, this was reported on our 2018 tax return using form 5329 to pay penalties; I later got letters from IRS with more penalties and paid those.

Vanguard reported the $6500 distributions on our 2019 Form 1099-Rs for the Roth accounts. Taxable amount was left blank on both. For my distribution, they used code J and checked "taxable amount not determined." For my wife's distribution, they used codes P and J but did NOT check "taxable amount not determined." Turbotax seems to be saying that we will owe penalties on the distribution to my wife, unless an exception applies.

QUESTIONS:

1. How should I enter the 2019 1099-R information in order to report the 2019 distributions (of $6500 each) on my 2019 return? Which codes should be entered, and what should I put for "taxable amount not determined"?

2. Since the (excess) Roth contributions were made with after-tax money, I am assuming there is no income tax (or early distribution penalties) owed on the distributions. Of course we owed penalties for making the contribution and not taking it out on time, but I believe those were already paid with the 2018 return and subsequent payments to the IRS. Is that correct, and how can I verify that turbotax is reporting it properly?

Thanks so much! This has been a real headache, but in some ways I suppose it's a good problem to have!!

Gerry

D

dmertz

Employee

"For my wife's distribution, they used codes P and J but did NOT check "taxable amount not determined." Turbotax seems to be saying that we will owe penalties on the distribution to my wife, unless an exception applies."

This Form 1099-R is reporting the return of an excess contribution made for 2018, not a distribution to correct an excess contribution made for 2017. Perhaps the transaction to correct your wife's excess contribution for 2017 was done improperly. A Form 1099-R for a distribution in 2019 to correct an excess Roth IRA contribution of $6,500 made for 2017 must have $6,500 in box 1, a blank box 2a, box 2b Taxable amount not determined marked and only code J in box 7.

G

GPC2Author

Thanks - I spoke with Vanguard and they are reissuing the 1099R for my wife with the correct coding (same as mine, as you described). Hoping this will cause turbotax to recognize both distributions as non-taxable and no early withdrawal penalty, since the distribution did not include any earnings.