Roth excess contribution earnings

[Colmatt]

I realize the income earned on an excess Roth contribution in 2020 is taxable and subject to the 10% penalty in my case.  We did not have the income amount in order to include in that 2020 return but now have it thanks to the 2021 1099-R coded J,P.  

Are going to amend the 2020:

- Do we enter the income earned ( amount on 2a of 2021 1099-R) by entering a 1099-R as if we received one in 2020 with income amount so it will flow to the correct lines and forms?  

Thanks, Sandy

[qbteachmt · Accepted solution]

You had the value of the account at the end of 2020 and you know the amount that was excess. The IRS has a formula, and lots of articles also list it for you:

Net income = Excess contribution x (Adjusted closing balance-Adjusted opening balance)/Adjusted opening balance

You would have had this info by the end of Jan 2021.

"but now have it thanks to the 2021 1099-R coded J,P."

"Do we enter the income earned ( amount on 2a of 2021 1099-R) by entering a 1099-R as if we received one in 2020 with income amount so it will flow to the correct lines and forms?"

Code P means Previous Year. Did the entire excess contribution get removed? Reassigned to a later year? Not distributed in time to be treated as if it never happened (removed before the 2021 return was filed, but overlooked and not reported)? Is it still in the account? Did the earnings get distributed, with the excess?

Here is the ProSeries help article. Expand the part for how to report your codes:

https://proconnect.intuit.com/support/en-us/help-article/federal-taxes/entering-form-1099-r-proserie...

I like web articles:

https://www.investopedia.com/what-to-do-if-you-contribute-too-much-to-your-roth-ira-4770686

"the income earned on an excess Roth contribution in 2020 is taxable and subject to the 10% penalty in my case"

Penalty and Income tax on the earnings removed, and Excise tax on the excess contribution; it is taxed at 6% until removed, for every year it stays in the account.

[Colmatt]

The entire excess and it's earnings were removed in total prior to due date of 2020 return.  We neglected to include the income earned on 2020 as we should have, thus the need to amend.  Thankfully the 2021 1099-R remined us to take care of this oversight.

[Colmatt]

Thanks for the link and help.

Sandy