Excess Roth IRA Contribution Withdrawal

[neilbrink]

In 2006, client contributed $4000 into a Roth IRA. Upon completing his 1040 for 2006, it was discovered that he did not qualify for the full amount, but had an excess of $3057. He requested a withdrawal and received the excess amount before the filing deadline, April 15(no taxes or penalties should be applied on the withdrawn excess, but only on the earnings while it was in the account). The 1099-R he received this year shows the $3393 Gross Distribution (Box 1) and $336 Taxable Amount (Box 2). Box 7 Distribution Code shows J and P. ATX is pulling the full amount ($3393) on to the form to be taxed and also to be penalized on Form 5329 ($339 penalty). Am I missing something here? Is there a way for me to code in the ATX program that the excess withdrawal should not be included in penalized income but only the earnings on that excess? Should the 1099-R have been coded differently? Any suggestions? Thanks. Neil

[joanmcq]

I got one of these too, and was flipping out. Actually if you put in just the code P, the P means it is an return of an overcontribution taxable in 2006, not 2007 (I had to read the codes on the back of the form to make sure) then it doesn't show up on the return at all, which I believe is the correct treatment. ATX seems to take the first code into consideration, not the second. You are supposed to amend the 2006 return. The problem with the software seems to be that if you just use the code 'J' it becomes fully taxable unless you use the 8606 page 2 to put in the basis. Then you have to jury-rig the basis to make the proper amount of earnings taxable and subject to penalty. I tried it every which way before I realized it was taxable in 2006.

[neilbrink]

I got one of these too, and was flipping out. Actually if you put in just the code P, the P means it is an return of an overcontribution taxable in 2006, not 2007 (I had to read the codes on the back of the form to make sure) then it doesn't show up on the return at all, which I believe is the correct treatment. ATX seems to take the first code into consideration, not the second. You are supposed to amend the 2006 return. The problem with the software seems to be that if you just use the code 'J' it becomes fully taxable unless you use the 8606 page 2 to put in the basis. Then you have to jury-rig the basis to make the proper amount of earnings taxable and subject to penalty. I tried it every which way before I realized it was taxable in 2006.

I just discovered that if I separate the box 7 codes with a space on the 1099-R, it flows correctly. Insread of typing in PJ, I typed in P J (space between).

[joanmcq]

Thanks for the trick. However, code P on a 2007 1099-R referrs to an excess contribution taxable in 2006. So the info has to go on the 2006 return, not the 2007. Unless, of course treatment for a Roth is different than for another type of retirment plan. Does anyone know?

[neilbrink]

Thanks for the trick. However, code P on a 2007 1099-R referrs to an excess contribution taxable in 2006. So the info has to go on the 2006 return, not the 2007. Unless, of course treatment for a Roth is different than for another type of retirment plan. Does anyone know?

Yes, the earnings on the excess is reported on the 2006 return and I have done that. I was concerned about the correct flow from the 2007 1099-R to the 2007 1040. I didn't want the IRS to infer that there should be some taxes and penalties due for 2007. Thanks.

[JerryH]

Anyone know how to report an excess 401(k) distribution received in 2008 that is taxable in 2007 without having a 1099R (It won't be issued until jan 2009). Tp wants to file 2007 and pay tax now instead of waiting for 1099r and paying interest on balance due. Thanks

[joanmcq]

Put it in as though the 1099-R existed.

[michaelmars]

don't you need to know the amount of interest earned that will be reported?

[JerryH]

They have shown the excess and earnings on the check stub. don't have payors id etc and would like to efile. There was no withholding . could this go on misc income line vs the wages line?