Withdrawal of Roth IRA Contribution in same year

Forum|Forum|7 years ago
April 7, 2019
2 replies
0 views

I under the age of 59 and have had a Roth IRA for under 5 years.

Last year in June 2018 I contributed $5500 (the maximum allowed for me) to my Roth IRA. Almost immediately (in July 2018) took $3000 of that back out. I am wondering if I am able to recontribute that $3000 right now before I file my taxes. In other words, as it stands right now, I am wondering if my contribution for 2018 are currently $2500 or $5500.

I believe I currently stand at $2500 in contribution for 2018 and that I can deposit another $3000, but I was told something different by Fidelity. I believe this because of this passage from the IRS:

If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.

macuser_22

Employee

It depends on how you took it out.

If you properly told the IRA custodian that you wanted a "return of contribution" and they also returned any earnings attributed to the contribution while in the IRA, then they will issue a 1099-R next year with a code J8 showing the return of contribution as if it never happened and you can still contribute the maximum that you are eligible to contribute.

If you simply took a normal distribution, then the IRA custodian will issue a 1099-R with a code J. Your contribution was not removed so you cannot contribute more.

**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.**

3

345234Author

Employee

I do have a 1099-R with a code J, so that means that I took a distribution rather than a "returned contribution".

macuser_22

Employee

Correct. When you enter the 1099-R, it will not be a taxable distribution since you are withdrawing your previous contribution, but you cannot make another 2018 contribution.

Be sure to enter the 2018 Roth contribution into the IRA contribution interview so that it will be applies to the distribution.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

=========

You can always withdraw your own Roth contributions tax and penalty free.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

One of the followup questions will ask for your prior year** contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.

Note: **Prior year - any 2018 Roth contributions should be entered into the IRA contributions section. They will not show up in the prior years contributions but will be accounted for on the 8606 form that calculates the taxable amount.

**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.**

A

Anonymous

If you contribute and then do a removal of the contribution in the following year (but before filing), then you have to report earnings. There is no penalty, because it's as though the contribution never even happened. The earnings are actually handled in the "other income" category, since you will not have the 1099-R yet. It looks like this (example):

2022 IRA Contributions Returned to You in 2023

Special rules apply to amounts that you contribute to your traditional or Roth IRA and that are
returned to you in 2023. These amounts may be reported to you on a 2023 Form 1099-R that has a
code "P" in box 7.

What contributions qualify?

The IRA contribution must meet all of these requirements:
• The contribution was made in 2022.
• The contribution was returned to you in 2023, with any related earnings or less any loss, by the
due date (including extensions) of your 2022 tax return.
• You didn't take a deduction for the contribution.

What contributions don't qualify?
• IRA contributions that were returned on a 2022 Form 1099-R with a code "P" in box 7 don't
qualify

fanfare

Employee

@5298929

It's not done that way.

positive income from your excess contribution is not other income.

it is IRA income included in line 4b.

If you are under age 59 1/2 there is also a 10% penalty for an early withdrawal.

A

Anonymous

Incorrect. It is a removal of contribution in the same tax year. Per IRS guidelines, it is as though you never even made the contrition. The quote I gave is direct from tax software, which will kindly redirect you to the other income category if you attempt to enter it in as an IRA distribution without a 1099-R.