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Clt contr to Roth in 2020 but AGI too high. Took out contr + earnings in 2021. How to get Lacerte to tax earnings? Lacerte is doing 8606 and saying basis > dist = NT.

Level 2
Client contributed to a Roth in 2020 and 2021, but AGI was too high.  They took out contributions plus earnings in 2021.  They have Roth basis of prior years contributions that were legitimate.  Lacerte is running it through 8606 and not taxing the earnings because the basis is higher than the distributions.  I'm expecting earnings to be taxed and 10% penalty because they are earnings on illegitimate contributions.  Am I wrong or how do I do the entry to get the expected result?
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2 Comments 2
Level 15

If the taxpayer is under the age of 59½, they pay the 10% early withdrawal penalty on just the earnings portion of the excess contribution. They pay income tax on the earnings. They avoided the 6% penalty, since they pulled the money out in time. That is a moot point. There should be a form 1099-R that shows this was early distribution (codes 8 and J, most likely). There should be a form 5498 for the penalty.

Prior basis doesn't come into play.

"Level Up" is a gaming function, not a real life function.
Level 2

Thanks!  Your understanding is my understanding.  Glad to have it confirmed.  

How do I get Lacerte not to route it through 8606 or have lacerte to not pull the prior legitimate basis to line 22 of the 8606?

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