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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I took an early IRA distribution of $42000 in 2008 and repaid

Resolved Question:

I took an early IRA distribution of $42000 in 2008 and repaid it within 60days. I have received a 1099R indicating that the $42000 is taxable. Turbotax has categorized the $42000 which I used to repay the distribution as an IRA contribution of which $37000 is in excess of that which is allowed. Subsequently Turbo says I owe a $2200 penalty for the excess contribution in 2008 and every year to follow until I withdraw the $37000. How do I indicate to the IRS that this was a "replacement" contribution and thereby avoid the tax/penalty.
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.

When you took this $42,000 and then repaid it, did you put it back in to the very same IRA account that you originally withdrew it from?

Customer: replied 8 years ago.
Expert:  Merlo replied 8 years ago.
Sorry, one more question.

When you re-deposited these funds, did you specify on your deposit slip that this was a rollover contribution? If so, did you keep a copy of that form?

When you took out this $42,000, was it all taken out at one time or in more than one withdrawal?
Customer: replied 8 years ago.
It was take as one lump sum and returned the same. Its actually my wifes Schwab IRA and I doubt that she made any "rollover" notation on the check. Schwab says we will receive some other form in May which will show the money was repaid and that this information will be sent to the IRS just as the 1099R was. However this will be after tax filing time.
Expert:  Merlo replied 8 years ago.
Hello againCustomer

If Schwab is acknowledging that they are in fact going to treat this as a rollover, then you will not owe tax on any of this money. Although it is a little strange to me that it will take them until May to get you a corrected form.

However, if you have talked with Schwab and are certain that they are going to treat this as a rollover, then when you are doing your taxes on Turbo Tax, TT should ask you for any amounts that you took from your IRA as a distribution, and you would enter the $42,000. However, they should also be asking you for any amounts that you rolled over, and you would again enter the amount of $42,000. The two amounts would then in effect zero each other out.

There has to be a question in the Turbo Tax interview process that you missed pertaining to how much you rolled over, and that is what is causing this error. Do you recall seeing such a question in the TT interview?

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.

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Customer: replied 8 years ago.
You are correct, calling it a rollover (makes sense) eliminates the penalty and washes the early distribution. I'm not sure what form Schwab is referring to corrected or otherwise, I just hope this does not create an ongoing confusion. Thank you for your help.