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Roth Excess contribution and Tax Filing

Forum|Forum|6 years ago
March 14, 2020
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My wife and I contributed 6K each to Roth IRA in 2019, while doing 2019 taxes we figured that we were not eligible to contribute. We already requested to transfer the excess contribution back to our trading accounts. One account we had profit and other had loss, so we got around 5K and 7K back. I read the forums but could not get exact answers. I have not completed the taxes yet for 2019.

Question 1 - First account where we got only 5K back - What should we write when it ask how much we removed before April 15th, 5K or 6K? Noticed that if I enter 5K it add 6% penalty on rest 1K. Do we need to do anything else next year when we get 1099-R.

Question 2 - Second account with Profit - What should we write when it ask how much we removed before April 15th, 7K or 6K? Since I will get 1099-R next year how do we take care of extra 1K profit since I still have time to complete my taxes for 2019. In case we take care of this now, do we need to do anything next year when we get 1099-R.

Appreciate any help on this.

Best answer by dmertz

sounds good, Thanks again @fanfare.

@dmertz what's your expert opinion on this. I want to make sure I don't mess up anything.

It seems that in each case the amount returned was $6,000. One account suffered about a 17% loss while the $6,000 was in the account, resulting in a loss-adjusted transfer of about $5,000. The other account realized about a 17% gain, resulting in a gain-adjusted transfer of $7,000.

For the one that saw a gain, the $1,000 is taxable income and is subject to a 10% early-distribution penalty on your 2019 tax return. This is accomplished by entering a 2020 Form 1099-R into 2019 TurboTax:

Box 1 = $7,000
Box 2a = $1,000
Box 7 = codes P and J

making sure in the follow-up questions to indicate that it is a 2020 Form 1099-R. Entering this now even though you will not receive this Form 1099-R will mean that you will not have to amend your 2019 tax return to add it when the actual form arrives near the end of January 2021.

No Form 1099-R needs to be entered with respect to the account with the loss.