Withdrawal of excess roth contribution

[BBmack]

Client contributed to a roth in 2023 but later realized he didn't qualify. He had put in $7500 and withdrew it plus $25 in earnings. IRS 1040 instructions say that you report the gross distribution ($7,525) on line 4a and the earnings on line 4b. They also say DO NOT file Form 8606. The code for the distribution is T which is "Roth IRA Distribution, Exception Applies".

I tried to enter the $25 of earnings in the taxable amount column on screen 13.1 but it will not take it without going through form 8606. I talked to lacerte support and they had no answer.

Has anyone had this problem and how did you handle?

[jharvey]

Form 5329 instructions say the following:

You can withdraw some or all of your excess contributions for 2023 and they will be treated as not having been contributed if:

• You make the withdrawal by the due date, including extensions, of your 2023 tax return; and

• You withdraw any earnings on the withdrawn contributions and include the earnings in gross income (see the Instructions for Form 8606 for details). Also, if you hadn't reached age 59 1/2 at the time of the withdrawal, include the earnings as an early distribution on line 1 of Form 5329 for the year in which you report the earnings. Report this amount on line 2 and enter exception number 21.

[BBmack]

No, actually the instructions I am reading deal specifically with an IRA excess contribution. It is on page 6 of the Form 8606 instructions and says not to report on Form 8606.

[jharvey]

If you input the 1099-R with a distribution code of 8, "Excess contributions plus earnings", it will carry to 1040, lines 4a and 4b and not carry to Form 8606, or 5329. Maybe the 1099-R has the wrong distribution code.

[BBmack]

That may be it.  Apparently the "T" code does not allow line 4b to populate unless it goes through 8606, but page 6 of the 8606 instructions under  "Return of  IRA Contributions" (both traditional and Roth) say not to use 8606.

I think you nailed it that  they should have used Code 8. I left their code T and added code 8 as ther second code and it put the $25 in line 4b without an 8606.

You need to apply for Lacerte support job as you figured it out when they couldn't.