Excess ROTH IRA after filing (and calculating NIA)

[ohcexpert]

I filed my tax return last week. Then I discovered I have excess contribution to ROTH IRA and will file amendment before April 18.

I split my monthly contribution equally – one to A  ($X at end of the month) and other to B ($x mid-month). The excess contribution unknowingly began on or after July 15, 2022. But with multiple ROTHs IRA, am I correct that I need to fix the one with the LAST contrib. i.e. A?

Also I incurred loss for A (as well as B) due to change in value at start and end of the period.

What are the reference dates for the Net Income Attributable (NIA)? July 15 and Dec 31?

There were dividend and other gains in that period.

Finally in 2022 I was 58 years old.

What forms do I use? or edit?

Thanks

[DanaB27 · Accepted solution]

Yes, the excess is created by the last contributions. 

Calculating the earnings can be complicated especially with multiple contributions (please see 26 CFR § 1.408-11 for details)  therefore it might be best to let your financial institution calculate the earnings. You will request the withdrawal of the excess contribution plus earnings and they will calculate the earnings for you. 

The earnings will be taxable. TurboTax will use Form 5329 Part I to indicate the exemption from the 10% penalty if withdrawn after December 29, 2022.

During the IRA contribution interview, you will enter on the penalty screen that you removed the excess contribution but the extended due date:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Continue to the penalty screen and enter the excess contribution amount as removed.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2022?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning or contribution minus loss)
7. Box 2a enter the earnings (for a loss enter $0)
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

[ohcexpert]

Thank you for the response.

To sum up the situation now

0) I had already filed my return last week.

1) But this week, I removed the excess contribution.

2) Ironically, I had losses so I recovered LESS than what I contributed.

3) So what are the steps to AMEND the tax return before April 18th. I did a dry run and was somewhat unsure of the question (what was your contribution? do I enter the new corrected contribution?)

Thanks all round

[DanaB27 · Accepted solution]

Did you enter the Roth IRA contribution for 2022 on your return before? If yes, you should have a checkmark next to it and will click continue and go through the questions again until you get to the penalty screen where you will enter the contribution amount as removed by the due date.

If you didn't enter the Roth IRA contribution then you can enter it and then enter it as removed by the due date (on the penalty screen).

Please be aware, since you had losses your return will not change when you amend it but TurboTax will create a statement of explanation for the return of the contribution. Here you will enter that you returned the $xxxx (excess contribution amount) with a loss of $xxx.

@ohcexpert 

[ohcexpert]

Oh there is one final wrinkle. For one account, I realised I had to make another excess contribution (but small one) which turned out to have a small gain. But when this is combined with the previous excess contribution and associated loss, there is an overall loss. So is it necessary to separate these two ie report the very small gain or ok to combine and report just the loss with a similar explanation?

[DanaB27 · Accepted solution]

No, if these were all excess contributions for 2022 then you don’t need to separate them. You can combine them and report them with one entry.

@ohcexpert

[ohcexpert]

Actually I am NOT using the online TT but the Windows version

So I am struggling to do the following

1) I have ALREADY filed my tax return for 2022

2) Then I noticed that I made excess contribution of $3630 to two ROTH accounts

3) I was able to remove the excess contribution sans the loss for both accounts

4) I tried to follow the instructions to make a 1099-R form for amending the tax return

5) BTW I dont think I actually entered any information about my ROTH in my actual return.

How do I fix this on Windows TT?

Thanks

[DanaB27 · Accepted solution]

The steps in TurboTax Windows will be similar to TurboTax Online.

If you already filed your 2022 return you might not need to amend your return because you had only a loss, therefore, you won't have a taxable event and it won't change your return. TurboTax will only add an explanation statement.

If you didn't enter the Roth contribution then you don't have to enter it since you removed the contribution by the due date.

If you still want to amend your 2022 return to add Form 1099-R for the return of excess contribution then please follow these steps in TurboTax Desktop:

 Click "Federal Taxes" on the top and select "Wages & Income"

1. Click "I'll choose what to work on"
2. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
3. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
4. Click "I'll Type it Myself"
5. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
6. Box 1 enter total distribution (contribution minus loss)
7. Box 2a enter $0
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

@ohcexpert