All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Trusted Pioneer
Posts: 6
Registered: ‎01-17-2018

Excess Contribution to Roth IRA

Hello,

 

In 2015 I made an excess contribution to my Roth IRA of $3,050.  I paid the 6% penalty for this contribution in 2015, 2016, and am about to pay it again in 2017. Ugh.  I want to withdraw the excess contribution so I can stop paying this penalty every year.  My question is:  when I remove the excess contribution and have the excess funds distributed back to me this year does this require me to file an amended return for 2015 or do I simply record the distribution on my 2018 tax return next year via the 1099R form that I assume I will receive after the distribution.

 

I'be used and continue to use H&R block software every year since 2014 to complete my returns.

 

Thanks so much.  This site is an incredible resource.

 

Juvat01

Highlighted
Trusted Council Member
Posts: 6,191
Registered: ‎02-23-2016

Re: Excess Contribution to Roth IRA

Hi Juvat01,

 

 

 

Welcome to the H&R Block community.

 

No, you do not need to amend your 2015 tax return.

 

All you need to do is make sure you withdraw the excess by April 17th of this year so that you don't have to pay any further penalties.

 

If you have not contributed the maximum for 2017 or if you have not yet contributed for 2018 then another option would be to have your account manager treat the excess as a contribution for either 2017 or 2018.  That way you won't have to withdraw it if you don't want to.

 

Withdrawn contributions must normally be included in gross income, however since we're talking about a Roth IRA only earnings will be taxable.  The taxable amount of a Roth distribution is figured using Form 8606.  Your 1099-R will show the amount you withdrew and you should also receive Form 5498 that will show your contributions.

 

 

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Trusted Pioneer
Posts: 6
Registered: ‎01-17-2018

Re: Excess Contribution to Roth IRA

OK...so I withdrew the excess contributions and earnings and manually entered a 1099R but after completing the form the tax penalty still shows up for 2017.  How do I get rid of that?

Valued Pioneer
Posts: 4
Registered: ‎01-25-2018

Re: Excess Contribution to Roth IRA

I withdrew $2,980 from my IRA early in 2017.I
reported that as taxable income since I had not
paid taxes on it.As I proceeded with filing my
tax return,I was receiving a refund of $6,300.
When I plugged in the IRA amount my refund
dropped from $6,300 to 5,556.The instructions
along the way and my understanding is that
early withdrawal is a 10% penalty which would be
$298.It dropped by $700.Can someone help
me understand why that happened?Thanks so much.

Jared
Associate (Pioneer)
Posts: 107
Registered: ‎01-08-2018

Re: Excess Contribution to Roth IRA

Hello Juvat01,

 

After you remove the excess contributions and earnings made to your Roth IRA, make sure in the tax program that you to get to the screen that shows the amount you contributed to the Roth IRA and then either delete the amount contributed or alter the amount to be a smaller amount that reflects the excess that was taken out. After either deleting the amount contributed or change the amount contributed to a lower amount, that should cause the tax program to prompt a different message saying that you are not subject to the penalty. Or, if you encounter a screen that mentions how much you removed, then that too should trigger a message saying that you are not subject to the penalty.

 

Now, it could be possible that the penalty that you see in the tax program may be referring to a separate penalty on the distribution or withdrawal on that 1099-R. Depending on the code in box 7 of that 1099-R, you may get a box 7 code like 1, 2 or J, which should trigger a completely different penalty that you might be seeing currently in the tax program. If the circumstances behind this 1099-R withdrawal meets any of the tax rules for an exception to waive the penalty, then you would need to go to either the "Retirement plan, IRA, and other plan penalties" section or the "Form 5329 (interview)" screens in the tax program. These such screens should contain additional details for these exceptions. If any of the exceptions don't apply to you, then this specific penalty will not be waived.

 

If you have any other questions, I'll be glad to help.

 

Lawrence,

Tax Research Specialist

Associate (Pioneer)
Posts: 107
Registered: ‎01-08-2018

Re: Excess Contribution to Roth IRA

Hello jaredhood1024,

 

Welcome to H&R Block Community.

 

To answer your question, when the $2980 from the IRA is marked as taxable income for this 1099-R, it will be combined together with the rest of the income on the tax return. Thus, this will increase the taxable income amount that is subjected to the regular income tax rate. Therefore, your 1099-R income is being subjected to both the regular income tax and the penalty. The tax refund amount that you currently see accounts for both the penalty and the regular income tax liability. Also, it could be possible that the inclusion of the 1099-R taxable income amount might have placed you in the next income tax bracket, thus your tax refund is subjected to a higher tax rate in addition to dealing with the penalty.

 

If you have any other questions, I'll be glad to help.

 

Lawrence,

Tax Research Specialist