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Still more reasons why I'm not posting...or, why people commit suicide over their taxes
Fortunately, I have the proper response to this nightmare. It's called, next year, an accountant.
Below is the most decipherable answer to my dilemma, having put $2124 too much into my Roth IRA. This answer was voted the best by every other desperate person on the TurboTax Community who got this finished before now. You may ignore the details -- I simply want to terrify you into never paying into your IRA before you know your final earnings for the tax year. Otherwise, the ghost of 1099-R past may visit you, too.
If things don't start looking up by this time tomorrow, I will attempt to coax my accounting friends from their burrows with the lure of something like a $100 gift certificate to Fogo de Chao, or something like that, to make this all go away.
You know it's bad when paying the 6% penalty for the rest of your life sounds good.
Good night, all.
*********
Tax Year 2007
Return of Contributions to Roth IRAs
This is the situation.
You have a Roth IRA and have over contributed to the IRA creating an excess contribution. This could occur if you have earned income less than the amount contributed, contribute more than the maximum allowed for the year ($4,000 or $5,000 for 2007), or have the contribution limited by AGI. The $5,000 maximum is for persons age 50 or older.
Contribution is withdrawn by the due date of the tax return, including extensions, for the year for which the contribution was made.
(((1040 Due October 15, 2008 for Year 2007)))
(((Contributions Paid into Roth January 30, 2008 for 2007 ($5000) and 2008 ($6000) )))
This applies to any contribution withdrawn before the due date (including extensions) of the tax return for the year for which the contribution was made. It does not only apply to excess contributions.
Contributions for 2007 can be made at any time during 2007, and can also be made from January 1, 2008 through April 15, 2008. Assume that the contribution was made for the 2007 tax year (even if it was made in 2008 before April 16, 2008). The contribution, PLUS EARNINGS, will be withdrawn by the due date of the tax return, including extensions. (((10/15/2008 for 2007)))
One Form 1099-R will be issued. The Form 1099-R will show the total amount withdrawn (contribution plus earnings) in box 1 and only the earnings in box 2a. If the withdrawal was made in 2007, then the Form 1099-R will be a 2007 form and will have a code 8 and a code J in box 7. This is to be reported on the 2007 tax return.
If the withdrawal was made in 2008, and the contribution was made in 2007, then the Form 1099-R will be a 2008 form and will have a code P and a code J in box 7, meaning that the distribution is to be reported on the 2007 (prior year) tax return. This is reported on the 2007 tax return.
If the distribution was made in 2008, and the contribution was made in 2008 for the 2007 tax year, then the Form 1099-R will be a 2008 form and will have a code 8 and a code J in box 7. This is reported on the 2008 tax return.
Note that the earnings are taxable in the year the contribution was made, not necessarily in the year the contribution was returned. If there are no earnings, or there is a loss on the contribution, box 2a should be zero, not a negative number.
The loss cannot be taken unless all money is withdrawn from all Roth IRAs and there is an unrecovered basis.
Contributions returned before the due date of the tax return are considered to have never been made. Therefore, there is no 6% penalty for excess contributions on Form 5329.
Here is what you need to know.
You need to know the breakdown of the amount returned, namely, how much represents the contribution and how much represents the earnings.
Here is what to do. Enter the Form 1099-R (in TurboTax interview: Federal Taxes Tab, Income, click "Select Specific Topics", then Retirement Distributions). If the contribution was returned in 2007, enter the 2007 Form 1099-R that should have been received with the code 8 and a code J. If the contribution was made in 2007 and returned in 2008, enter the 2008 Form 1099-R. This is the one with the code P and the code J. If this Form 1099-R has been received, then enter it just like it is on the one received.
If a Form 1099-R has not been received, then enter the amount of the contribution, including the earnings, in box 1 and only the earnings in box 2a. Enter code P and code J in box 7. Note that the drop down list for box 7 shows code P means taxable in 2006. THAT IS OK. It really means taxable in the prior year. Since a code P has been entered, a screen will appear asking if this is a 2007 or a 2008 Form 1099-R. (NO SUCH SCREEN HAS APPEARED.) Select 2008. Entering the 1099-R this way prevents the necessity of amending the 2007 tax return in 2008 when the 2008 Form 1099-R is received.
If the contribution was made in 2008 (but for 2007), then enter the 2008 Form 1099-R with the code 8 and code J on the 2008 tax return. Do not enter it on the 2007 tax return. Regardless of if or how the Form 1099-R is entered, continue through the IRA section of the interview (Federal Taxes Tab, Deductions & Credits, click "Find Deductions Myself", then Retirement and Investments, Traditional and Roth IRA Contributions). Where the Roth IRA contribution for 2007 is entered, reduce that amount by the amount of the contribution returned, not including the earnings. If the contribution came from a Schedule K-1, then this adjustment will need to be made on the K-1. Do not enter any amount of a prior year excess contribution, unless there is one. Do not enter the 2007 contribution as a prior year excess contribution.
Using the Forms Method, enter the Form 1099-R on the Form 1099-R Worksheet, just as is described above. If it is a 2008 Form 1099-R with code P and code J in box 7, check the box on line A5. Then, on the IRA Contributions Worksheet, enter the amount of the contribution returned, not including the earnings, on line 27 if the contribution is included on line 26. Alternatively, reduce the amount on line 18 by the amount of the returned contribution and do not make any entry on line 27. A Form 5329 will be generated on the tax return for the year the Form 1099-R is entered. This is for the 10% early withdrawal penalty and will be generated regardless of the age of the recipient.
If the distribution is reported on the 2007 tax return and the recipient is over age 59-1/2, then an exception to the penalty will need to be entered on Form 5329. In interview (Federal Review tab, Your Bottom Line), enter the amount of the earnings in the Other (including over 59 1/2) box. In the Forms method, this is entered on the Form 5329, Line L on the Distributions Not Subject to Additional Tax Smart Worksheet located below Line 1.
Excess contribution is withdrawn after the due date of the tax return, including extensions, for the year the contribution was made. This applies to just excess contribution withdrawn after the due date of the tax return, including extensions. Earnings on the excess contribution need not be withdrawn. This is treated like a normal distribution. In the ordering rules for distributions, excess contribution are deemed to be withdrawn before normal, annual contributions. Excess contributions are part of the contribution basis.
Here is what to do. In interview, just enter the Form 1099-R as it is received. Using the Forms Method, enter the Form 1099-R on the Form 1099-R Worksheet, just as it is received. The tax return for the prior years may need to be amended.
If a Form 5329 was not filed in the year of the contribution, or in any year subsequent to the year of the contribution through 2006, then these tax returns need to be amended to include the Form 5329 showing the 6% penalty on the excess contribution.
Below is the most decipherable answer to my dilemma, having put $2124 too much into my Roth IRA. This answer was voted the best by every other desperate person on the TurboTax Community who got this finished before now. You may ignore the details -- I simply want to terrify you into never paying into your IRA before you know your final earnings for the tax year. Otherwise, the ghost of 1099-R past may visit you, too.
If things don't start looking up by this time tomorrow, I will attempt to coax my accounting friends from their burrows with the lure of something like a $100 gift certificate to Fogo de Chao, or something like that, to make this all go away.
You know it's bad when paying the 6% penalty for the rest of your life sounds good.
Good night, all.
*********
Tax Year 2007
Return of Contributions to Roth IRAs
This is the situation.
You have a Roth IRA and have over contributed to the IRA creating an excess contribution. This could occur if you have earned income less than the amount contributed, contribute more than the maximum allowed for the year ($4,000 or $5,000 for 2007), or have the contribution limited by AGI. The $5,000 maximum is for persons age 50 or older.
Contribution is withdrawn by the due date of the tax return, including extensions, for the year for which the contribution was made.
(((1040 Due October 15, 2008 for Year 2007)))
(((Contributions Paid into Roth January 30, 2008 for 2007 ($5000) and 2008 ($6000) )))
This applies to any contribution withdrawn before the due date (including extensions) of the tax return for the year for which the contribution was made. It does not only apply to excess contributions.
Contributions for 2007 can be made at any time during 2007, and can also be made from January 1, 2008 through April 15, 2008. Assume that the contribution was made for the 2007 tax year (even if it was made in 2008 before April 16, 2008). The contribution, PLUS EARNINGS, will be withdrawn by the due date of the tax return, including extensions. (((10/15/2008 for 2007)))
One Form 1099-R will be issued. The Form 1099-R will show the total amount withdrawn (contribution plus earnings) in box 1 and only the earnings in box 2a. If the withdrawal was made in 2007, then the Form 1099-R will be a 2007 form and will have a code 8 and a code J in box 7. This is to be reported on the 2007 tax return.
If the withdrawal was made in 2008, and the contribution was made in 2007, then the Form 1099-R will be a 2008 form and will have a code P and a code J in box 7, meaning that the distribution is to be reported on the 2007 (prior year) tax return. This is reported on the 2007 tax return.
If the distribution was made in 2008, and the contribution was made in 2008 for the 2007 tax year, then the Form 1099-R will be a 2008 form and will have a code 8 and a code J in box 7. This is reported on the 2008 tax return.
Note that the earnings are taxable in the year the contribution was made, not necessarily in the year the contribution was returned. If there are no earnings, or there is a loss on the contribution, box 2a should be zero, not a negative number.
The loss cannot be taken unless all money is withdrawn from all Roth IRAs and there is an unrecovered basis.
Contributions returned before the due date of the tax return are considered to have never been made. Therefore, there is no 6% penalty for excess contributions on Form 5329.
Here is what you need to know.
You need to know the breakdown of the amount returned, namely, how much represents the contribution and how much represents the earnings.
Here is what to do. Enter the Form 1099-R (in TurboTax interview: Federal Taxes Tab, Income, click "Select Specific Topics", then Retirement Distributions). If the contribution was returned in 2007, enter the 2007 Form 1099-R that should have been received with the code 8 and a code J. If the contribution was made in 2007 and returned in 2008, enter the 2008 Form 1099-R. This is the one with the code P and the code J. If this Form 1099-R has been received, then enter it just like it is on the one received.
If a Form 1099-R has not been received, then enter the amount of the contribution, including the earnings, in box 1 and only the earnings in box 2a. Enter code P and code J in box 7. Note that the drop down list for box 7 shows code P means taxable in 2006. THAT IS OK. It really means taxable in the prior year. Since a code P has been entered, a screen will appear asking if this is a 2007 or a 2008 Form 1099-R. (NO SUCH SCREEN HAS APPEARED.) Select 2008. Entering the 1099-R this way prevents the necessity of amending the 2007 tax return in 2008 when the 2008 Form 1099-R is received.
If the contribution was made in 2008 (but for 2007), then enter the 2008 Form 1099-R with the code 8 and code J on the 2008 tax return. Do not enter it on the 2007 tax return. Regardless of if or how the Form 1099-R is entered, continue through the IRA section of the interview (Federal Taxes Tab, Deductions & Credits, click "Find Deductions Myself", then Retirement and Investments, Traditional and Roth IRA Contributions). Where the Roth IRA contribution for 2007 is entered, reduce that amount by the amount of the contribution returned, not including the earnings. If the contribution came from a Schedule K-1, then this adjustment will need to be made on the K-1. Do not enter any amount of a prior year excess contribution, unless there is one. Do not enter the 2007 contribution as a prior year excess contribution.
Using the Forms Method, enter the Form 1099-R on the Form 1099-R Worksheet, just as is described above. If it is a 2008 Form 1099-R with code P and code J in box 7, check the box on line A5. Then, on the IRA Contributions Worksheet, enter the amount of the contribution returned, not including the earnings, on line 27 if the contribution is included on line 26. Alternatively, reduce the amount on line 18 by the amount of the returned contribution and do not make any entry on line 27. A Form 5329 will be generated on the tax return for the year the Form 1099-R is entered. This is for the 10% early withdrawal penalty and will be generated regardless of the age of the recipient.
If the distribution is reported on the 2007 tax return and the recipient is over age 59-1/2, then an exception to the penalty will need to be entered on Form 5329. In interview (Federal Review tab, Your Bottom Line), enter the amount of the earnings in the Other (including over 59 1/2) box. In the Forms method, this is entered on the Form 5329, Line L on the Distributions Not Subject to Additional Tax Smart Worksheet located below Line 1.
Excess contribution is withdrawn after the due date of the tax return, including extensions, for the year the contribution was made. This applies to just excess contribution withdrawn after the due date of the tax return, including extensions. Earnings on the excess contribution need not be withdrawn. This is treated like a normal distribution. In the ordering rules for distributions, excess contribution are deemed to be withdrawn before normal, annual contributions. Excess contributions are part of the contribution basis.
Here is what to do. In interview, just enter the Form 1099-R as it is received. Using the Forms Method, enter the Form 1099-R on the Form 1099-R Worksheet, just as it is received. The tax return for the prior years may need to be amended.
If a Form 5329 was not filed in the year of the contribution, or in any year subsequent to the year of the contribution through 2006, then these tax returns need to be amended to include the Form 5329 showing the 6% penalty on the excess contribution.
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Best of luck!
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Love the icon!
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I have an investment couselor...
At that point I hope to have enough of my brain back to submit taxes.
"I will survive!"