Withdrawals of contributions by due date 2

Forum|Forum|2 years ago
March 22, 2024
1 reply
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This has been an absolute headache with Vanguard. My wife contributed $500 in July 2023 and then another $3000 in February 2024 for the 2023 contribution year into her Roth IRA.

Given our current financial situation, we decided it was best to withdrawal the $3500 before the tax filing due date.

Reading page 30 of the IRS Pub 590b and the Secure 2.0 Act, it sounds like the 10% penalty has been waived where I only pay the income taxes on the $93.80 earnings.

The 1099-R will be mailed in January 2025 with a code of PJ. TurboTax says the P stands for the previous year return of contribution and the J stands for early distribution from a Roth IRA.

So if I apply this code next year then nothing happens in TT as I imagine I'm supposed to file the $93.80 earnings with the 2023 1040.

If I open up TT for 2023 and add a 1099-R along with code 8J where the 8 stands for Return of Contribution taxable in 2023 as well as the J then I'm properly taxed but also assessed a 10% early earnings penalty.

I'm guessing I add a 1099-R with only the 8 code but I technically did not receive a 1099-R and Vanguard says the J stays on there.

The alternative is not add anything this year and then amend the 2023 1040 next year but I'm trying to avoid doing this.

TurboTax Home & Biz Windows

Best answer by fanfare

“However, for the distribution of excess Roth IRA contributions, report the gross distribution in box 1 and only the earnings in box 2a. Enter Code J and Code 8 or P in box 7"(Form 1099-R instructions).

Please follow steps 11 and 12 from above instructions to get the exception from the 10% early withdrawal penalty.

Code P only would indicate the return of an excess deferral and list it on line 1h instead of line 4.

Exception Code 21 - used on Form 5329, negates the penalty.

It is only distantly related to your distribution code(s) on 1099-R

fanfare

Employee

enter it AS IF you got it and say it is a 2024 1099-R

You should see the total distribution and taxable amount on Line 4.

@mgc6288

mgc6288Author

I do not see a "comment" section within the TT 1099-R area in order to state there will be a 2024 11099-R. I only have codes to select. The code that I will be receiving from Vanguard is PJ.

If I enter PJ into the TT 2023 edition then it will be listed as a 2022 return of contribution.

I'm guessing that I'm supposed to enter 8J as the code 8 signifies current year 2023 return of contribution.

However, if I enter the J (early distribution from a Roth IRA) then I am assessed a 10% penalty on the earnings. I thought it was established with the Secure 2.0 Act of 2022 that this penalty goes away starting with 2023. So do I just not use the J even though next year the J will be on the 2024 1099-R? Or does TT not realize this J should not penalize me?

Here is what I've entered so far:

Box 1: $3593.80 Gross Distribution

Box 2a: $93.80 Taxable Amount

Box 3: $93.80 Capital Gains

Code 8 Return of contribution taxable in 2023

Code J Early distribution from a Roth IRA

@fanfare