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Withdrawal of excess roth contribution
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BBmack
Level 1
03-13-2024
11:38 PM
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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?
4 Comments 4
jharvey
Level 4
03-14-2024
10:01 AM
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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You withdraw any earnings on the withdrawn contributions and include the earnings in gross income (see the Instructions for Form 8606 for details).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
Level 1
03-14-2024
10:12 AM
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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
Level 4
03-14-2024
10:39 AM
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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
Level 1
03-14-2024
01:58 PM
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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.
