Question

Withdrawal of excess contributions to Roth IRA causing 10% penalty?

Forum|Forum|1 year ago
March 20, 2025
1 reply
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Back in mid 2022, I opened a Roth IRA with $6000. Unfortunately, our AGI for 2022 was slightly above the Roth IRA limit, but I didn't know it at the time. I have paid the excise tax penalties for 2022 and 2023. In 2024, I withdrew my excess funds of $6000 and received a 1099-R showing a gross distribution of $6000 (box 1) and a distribution code of "J" (box 7).

When I entered this information into Turbo Tax, it triggered a 10% penalty for early withdrawal. Why would it be a penalty for early withdrawal when I withdrew ONLY the original investment which was made with money from my savings (after-tax money). Am I missing something in Turbo Tax that I'm doing wrong?

D

dmertz

If you have made no other Roth IRA distributions in this timeframe, your basis in Roth IRA contributions should be at least $6,000. Make sure that you click the Continue button on the page that lists the Forms 1099-R that you have entered and enter or confirm your basis in Roth IRA contributions. TurboTax will us this basis on Form 8606 Part III to determine that your $6,000 distribution is not taxable and therefore not subject to penalty.

B

bagron007Author

I went through all of the questions after entering the 1099-R and it is still assessing a 10% penalty. I looked for form 8606 in TurboTax and on IRS.gov and could not find it. I can't find anywhere that it asks if it is a distribution of my original contribution in TurboTax. I also didn't see which question really pertained to the $6000 basis in the Roth. I had the following questions and answers in TurboTax:

1099-R info = (1)Gross Distribution $6000, (2b) Taxable amount not determined, (7) J-Early distribution from Roth IRA

-What did you do with the money? = Did something else with it (cashed out)

-Did you buy a home? = NO

-Was this withdrawal due to a 2023 or 2024 Qualified disaster? = NO

-Owned any Roth IRA for Five Years? = NO (opened in 2022)

-Were Any Roth IRAs open on Dec 31, 2024? = YES (I withdrew the excess contribution of $6000 but left the earnings since it was originally opened in 2022)

-Withdraw from Roth IRA BEFORE 2024? = NO (I made the excess contribution in 2022, I paid the 6% penalty taxes for 2022 and 2023 and then withdrew my excess contribution in 2024 but left the earnings).

-Enter Prior Year Roth IRA Contributions (confirm my net regular contributions prior to 2024 that REMAIN in the Roth IRA: = $0

-Any Roth IRA Conversions? = NO

-Enter Excess Contributions(Excess Roth IRA Contributions for Prior Years) = $0 (I took out the excess contributions made in 2022 prior to Dec 31 2024)

-Did you use your IRA to pay for any of these expenses? NO to all $0 (list of items that I didn't use the money for...I only took it out because I had to take out the excess contribution)

Then I got the "Based on your entries, your tax bill is $600, or 10% of the money you took out.

Am I answering one the questions incorrectly in TurboTax? Or is my 1099-R incorrect?

D

dmertz

"Enter Prior Year Roth IRA Contributions (confirm my net regular contributions prior to 2024 that REMAIN in the Roth IRA: = $0"

This is a badly worded question in TurboTax. It's asking for the amount of contributions that remained to be carried into 2024. Presumably that was $6,000 (or perhaps some other amount due to investment gain or loss), not $0.