Reporting a loss on excess Roth contribution

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
fkane220
Posts: 3
Joined: Thu Jul 30, 2020 7:22 am

Reporting a loss on excess Roth contribution

Post by fkane220 » Thu Jul 30, 2020 7:52 am

Hey folks,

I contributed about 3,000 in excess to my ROTH IRA for tax year 2020.

My IRA custodian told me I would be getting a 1099R that would have a code J8 in the amount of 2,800 (a loss of 200).

How would I report this on my taxes in 2020? If I input the numbers from my 1099-R, won’t it look like I didn’t remove all of the excess contribution to the IRS? Since they receive a 5498 every year wouldn’t they see that I made 3000 in contributions and only took out 2,800 or am I missing something?

fabdog
Posts: 1238
Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Reporting a loss on excess Roth contribution

Post by fabdog » Thu Jul 30, 2020 8:08 am

You will be reporting what you had to withdraw to fix the issue. There will be a spot in the tax software to show what the excess was ($3K), and the amount distributed to you ($2.8K)

The forms will handle it fine.

Think of this as the flip side of the amount they gave you back being $3200. You'd report $3K as the excess, and $3200 as the distribution. Your tax form will show the $200 as taxable income

Mike

Topic Author
fkane220
Posts: 3
Joined: Thu Jul 30, 2020 7:22 am

Re: Reporting a loss on excess Roth contribution

Post by fkane220 » Thu Jul 30, 2020 8:11 am

Thanks for the super helpful quick response!

Alan S.
Posts: 9798
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Reporting a loss on excess Roth contribution

Post by Alan S. » Thu Jul 30, 2020 12:28 pm

Because the 1099R form provides no direct data indicating the amount of the excess that was removed, the taxpayer is required to include an explanatory statement with their return for the year of contribution. This is stated in the Inst for Form 8606 and in Pub 590 A.

For example, using the OP numbers, the statement would read:
" I contributed an excess amount of 3000 to my Roth IRA for 2020. On xx/xx/2020 the entire excess amount, which was then worth 2800 was distributed from the Roth IRA".

This lets the IRS know you actually had the entire excess returned. Without your statement, this particular 1099R would just establish that you removed between 2800 and 3000 of the excess.

If you had a gain, the IRS could figure out between Box 1 and 2a the amount you had returned, but they don't want to do that extra math, they want you to tell them.

The same holds true for a recharacterized contribution, but more so. Since 2a does not apply to a recharacterization 1099R, the IRS could not determine the amount recharacterized from the 1099R even if they tried. All they see is the amount that actually transferred to the other IRA.

Topic Author
fkane220
Posts: 3
Joined: Thu Jul 30, 2020 7:22 am

Re: Reporting a loss on excess Roth contribution

Post by fkane220 » Sat Aug 01, 2020 9:34 am

Very helpful! Thank you so much!

Post Reply