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Is excessive contribution withdrawal treated as income?

Forum|Forum|5 years ago
March 31, 2021
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I had an excessive contribution in my Roth IRA account.

I've gone through the excessive contribution withdrawal process and move the money to a traditional IRA in June last year. I also paid 6% penalty for excessive contribution every year the money is in my Roth IRA.

My 1099-R looks has this amount coded J. I imported this document into Turbotax and it looks like Turbo is treating this withdrawn amount as income and shows I need to pay tax on it.

Does that sound correct?

Side question: My financial advisor put money into my Roth IRA for me. I am actually not eligible because I live abroad. I ended up paying a hefty penalty. Just curious if anyone knows if there is any legal ground I can seek help here.

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Best answer by ThomasM125

If you withdraw the excess contribution to your traditional IRA by the due date of the tax return, which is May 17, 2021 for a 2020 tax return, you will not be penalized on the excess contribution, but you will need to pay tax on the income earned on the excess contribution while it was in the IRA.

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ThomasM125

You would only have to pay tax on the income on the distribution, which should have been listed in box 2 on your 1099-R form. You should review the form 1099-R entry in TurboTax, as you need to answer some questions about the distribution that may not be reflected on the 1099 form.

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tdo061803Author

Thanks that's clear.

Since I move the excessive contribution to my traditional IRA in one year and it passes one's contribution limit to Traditional IRA, I found myself a new situation.

What's your advice on that? Much appreciated!

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ThomasM125Answer

If you withdraw the excess contribution to your traditional IRA by the due date of the tax return, which is May 17, 2021 for a 2020 tax return, you will not be penalized on the excess contribution, but you will need to pay tax on the income earned on the excess contribution while it was in the IRA.

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