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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: Being taxed on IRA excess contrib LOSS? Date: 2/8/2009 3:35 PM
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I contributed $425 to my Roth IRA before I figured out I wasn't eligible this year (due to AGI). Once I realized it, I called my brokerage to request the excess contributions be removed from my Roth and transferred to my non-retirement brokerage account. The amount was $316, due to the shares I purchased in the Roth declining in value.

Now, I've received a 1099-R for the $316. It lists distribution code 8J. My tax software (Tax Act pro version) is now showing that I need to complete Form 5329 and that I owe taxes on the $316. This doesn't jive to me since I had a LOSS, not gain on the excess contributions. Can anyone help? TIA.


Well, first the good news. You don't owe any penalty.

Now for TaxAct. I've long maintained that if you can't lie to software you shouldn't use it. The easiest approach is to omit the "J" from your 1099-R input. (It shouldn't have been there in the first place.)

If you don't feel comfortable doing that, is there an amount in Box 2a? If not, enter zero.

What you're supposed to do is explained in the instructions for Form 8606.

Phil
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