Excess Roth IRA Contribution Removal for tax years 2022 & 2023

[msv1]

 I filed my 2023 taxes on time by April 15, 2023, deadline. Since I became aware of my excess contributions for 2022 and 2023 only a few days before that, I attempted to remove as much as I could based on my limited understanding. Here are the details of removals -

2022 contributions removed -

April 22, 2023 - self (contributions only with no fed tax withholding)

May 10, 2023 - spouse (contributions but broker decided to do 10% fed tax withholding and is not willing to correct it so far saying it can't be changed now)

2023 contributions removed -

April 15, 2023 - self (contributions for 2023 tax year made in 2023 + earnings tax withholding)

April  19, 2023 - self (contributions for 2023 made in 2024 before Tax deadline of April 15, 2023)

2023 excess for spouse for 2023 to be removed in next few days (this contribution was made by Dec 31, 2023)

So now, this is what I am understanding (and hopefully do) based on the feedback I am getting so far.

1. Amed the 2022 return with 5329 for self and wife with schedule 2 and pay 6% penalty. In case broker doesn't change the situation related to tax withholding, do the 2022 amendment any ways without fed withholding consideration. Correct me if I am wrong, hopefully I will get fed withholding back when I receive 1099R and report it when filing 2024 taxes.

2. Amend 2023 taxes (as filed by April 15, 2024) to report removal and earnings by Oct 15, 2024. I need to file 1040X with “Filed pursuant to section 301.9100-2” written at the top. However, I'm still confused about forms that I need to file earnings on to reflect it on 1040X. Following are the observations and questions I have regarding the forms I may have to  to complete and attach:

(a) 5329 for self and spouse to pay any penalty (not clear if 6% penalty needs to be paid again as I already would have paid 6% when amending 2022). I am yet not clear about 10% penalty that I believe I have to pay on my wife's earnings on the excess contribution. 

(b) Not sure how (what forms etc) excess contributions for 2023 removed will be reflected on amendment.

(c) Do I need to amend and submit schedule D to reflect earnings on excess contributions with 1040X. Am I to redo all of Schedule D to reflect 2023 earnings on withdrawals in it? If that is the case, the earnings are so miniscule that will be offset by carryover losses (both long term and short term and number to enter on 1040X will not change. Bigger questions for me is how and where to reflect these additional earnings to amend schedule D or other form that I may have to file.  Additionally, since my broker split the distributions on contributions made in 2023 for 2023 contributions and 2023 contributions made between Jan 1, 2024 - April 15, 2024, would that portion be covered in 2023 amendment. My understanding is no, but any feedback will be appreciated. 

(d). anything, I may be missing so far. 

@fanfare

[fanfare]

when you remove earnings, you ask the custodian to calculate the earnings for the period in question.

The period in question does not include a 2022 contribution, since it is too late to remove earnings for 2022.

The custodian can calculate the earnings for 2023 contribution. the earnings depend on the calendar period the contribution is (or was) in the IRA.

You can also do the calculation yourself by consulting the IRS publication. This is error prone and you won't get a 1099-R with the correct taxable amount.

earnings don't go on Schedule D; that are added into 1040 Line 4b. that is the only form involved.

"April 15, 2023 - self (contributions for 2023 tax year made in 2023 + earnings tax withholding"

I don't know what you mean by "earnings tax withholding". 

Disregard withholding which is a separate issue.

If you took the contribution only, the earnings are still in there and have to be calculated and removed.

If the earning come out to be negative, then taking the entire  contribution results in an early withdrawal.

I 'm not familiar with how or whether the custodian can adjust for action you took on your own.

You can ask the custodian to calculate the earnings and inform you, then you take out whatever is still to be taken (i.e. earnings only as otherwise you will have  taken too much, which is an early distribution, which has  a penalty).

penalty on early withdrawal, has its own rules, not discussed (yet).

@msv1 

[msv1]

"April 15, 2023 - self (contributions for 2023 tax year made in 2023 + earnings tax withholding"

"I don't know what you mean by "earnings tax withholding". 

Disregard withholding which is a separate issue.

If you took the contribution only, the earnings are still in there and have to be calculated and removed.

If the earning come out to be negative, then taking the entire contribution results in an early withdrawal." 

What I meant was that contribution plus earnings were removed and in addition they custodian brokerage withdrew tax withholding on those earnings. When i questioned it, I was told this is how it is done if I want custodian to do the earning calculations. So, they took out more than they should have but It is done now.

"I 'm not familiar with how or whether the custodian can adjust for action you took on your own.

You can ask the custodian to calculate the earnings and inform you, then you take out whatever is still to be taken (i.e. earnings only as otherwise you will have  taken too much, which is an early distribution, which has  a penalty). penalty on early withdrawal, has its own rules, not discussed (yet)." I agree that they took out too much. However, regarding penalty, I am over 59 1/2, so I don't think I need to worry about early withdrawal penalty. Honestly, I have spent so much time so far with custodians to do it correctly, being passed from one manager to other, that I don't have it in me to keep trying after the fact.  On top of that this issue about amendments and paying penalties is too taxing for me. 

"earnings don't go on Schedule D; that are added into 1040 Line 4b. that is the only form involved."

You mean 1040X line 4b when I amend taxes?

Still not clear about what penalties (additional 6% etc.) are due with 2023 amendment.

@fanfare

[fanfare]

"they took out too much"

You need to wait for the actual 1099-R(s) that you will get for you and your spouse.

The simplest solution is to amend 2023 next year. with the forms they send you.

The code(s) may not be what you expect.

If the codes cause further problems you would have to direct TurboTax using the corrct codes and explain to the IRS why you are filing this way.
OR, there may be no problems or problems small enough not to worry about.

As I stated several times,

"earnings don't go on Schedule D; that [sic] are added into 1040 Line 4b."

Allocable earnings go  on Form 1040 Line 4b, that increases your AGI, 1040-X Line 1.

Your AGI cannot go down, because negative earnings are ignored.

As I stated several times, 

"the 6% applies to the second case, case 2, only. See Form 5329."

Now that you confirm that earnings were removed, on time, you will be amending under case 1.

You know exactly what the custodian earnings calculation was by subtracting your excess contribution from your actual distribution.

You have to do this for each spouse's IRA since you both had excess.

When amending and paper-filing,

do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

@msv1 

[msv1]

Thanks #fanfare, #karenL for great responses. Unfortunately for me at this time, the information regarding "how to" and "when to" file is becoming overwhelming considering my limited knowledge of tax code and my initial hope of a simpler solution of what appeared to be an easy file to pay penalties and any taxes on residual income and move on. But it doesn't appear that is the case due to so many moving parts, including trying to do it with help of TurboTax that I have used since 2010.

Honestly, I don't know how the excess happened and why TurboTax didn't prompt me beyond a pop up that "would you like TurboTax to track your Roth IRA contributions" in 2023 is not clear. But now that is past, and I have to correct the situation, and timing can't be worse as it has caught me at a moment when I can ill afford to pay hefty penalties. 

Regardless, here are the facts of the matter.

1. First excess contribution happened in 2022:  Self - $7000, Spouse -$ 4000 (both removed in April/May 2024 as reg distribution).

2. Second excess contribution occurred in 2023: Self $7000 , spouse $200 (Excess (self) removed - $3500 on April 15, 2024 and 3500 on April 17, 2024; $200 for spouse to be removed in next few days)

3.  I filed my 2023 taxes before April 15, 2024, assuming that gives me until Oct 15, 2024 to remove any excess and/or amend tax returns for 2022 and 2023.

So, my questions are as following (some of these questions may have been answered partially in some way earlier by #fanfare, #karenL and others but I am reiterating the questions so someone else reading may not have to go back to understand my issues. My questions may have too much detail which may cause confusion for some, for which I apologize):

1. Amending 2022 taxes - Since the excess removal was done after tax deadline and I removed just the contributions (no earnings) in 2024, so

(a) am i required to pay anything more than 6% penalty on mine and my wife's excess on 2022 amended taxes?

(b) what forms do I need to use to amend?

(c) Do I need to generate 1099-R to file with 1040X?

(d) How do I do with turbotax if I don't wish to do it manually? Any step by step instructions would be appreciated.

2. Tax year 2023 - Amending 1040 that was filed on time before April 15, 2024, deadline - The removal of excess occurred (one before April 15, 2024) and rest after in April/May 2024 with earnings (separated for 2023 and contributions for 2023 made before April 15, 2024). Unfortunately, my broker removed tax withholdings from my account as well causing too much to be removed which I don't wish not to worry about considering other issues on hand. I intend to file 2023 amended taxes before Oct 15, 2024.

(a) am I required to pay another set of 6% penalties (or any additional penalties) on excess contributions for 2022? If yes what forms are required to be filled to report with 1040X.

(b) What forms do I need to complete to report 2023 excess removal?

(c) Since earnings for 2023 contributions were broken up between 2023 and 2024, Do I need to omit 2024 earnings at this time and use them next year on 2024 tax return or can they be settled in 2023 amended tax return. 

(d)  I am assuming there are no penalties for withdrawal of excess 2023 contributions but there maybe 10% age penalty on earnings on excess contribution. My penalty in this case would be around $5-$10. How and where to report this penalty? Do I need to break this up for penalty on what was earned in 2023 and 2024?

(e) Can someone suggest step by step process to do this with turbotax?

(f) Anything I may have missed

Any feedback and help anyone can provide would be appreciated. 

#ekalbs4  #DanaB27 #fanfare #karenL

[fanfare]

Again you repeat all the questions about 2023 that I answered for you in detail above.

Your spouse's and your  contribution in 2022 falls under Case 2.

the excess was in there for two calander years so there are two years of 6% penalty.

Each IRA belongs to one person so you have to prepare two Forms 5329 for 2022 and two for 2023.

Get 2022 Form 5329 and 2023 Form 5329 from the IRS and try to prepare them by hand.

If you pay attention you will see how to do it and undestand why you will also have to file 2024 Form 5329 next year.

If you still don't see how to do it or don't want to start cold, get "Instructions for Form 5329" and review that document.

It is time to bite the bullet and prepare the forms.

It won't be any easier trying to explain all this to a professional tax preparer, who would charge a hefty fee.

@msv1 

[fanfare]

In Fact 3. above, you are still confused about the Oct deadline for removing excess (it doesn't impact you) and the deadline for amending (there isn't any October deadline).

@msv1 

[msv1]

"Again you repeat all the questions about 2023 that I answered for you in detail above."
"you are still confused about the Oct deadline for removing excess (it doesn't impact you) and the deadline for amending (there isn't any October deadline)."

You are correct on both accounts. Maybe the reason is that I am not used to details regarding taxes and this is first time dealing with such situation. Further, it could also be that I am hoping too much by expecting logical step by step instructions and exact forms I have to fill for each step for 2023 and 2024, like the following below that you had provided for 2022 in your earlier post. It was clear and concise for someone like me and I am grateful to you for being patient with me.

"If you are paying a penalty then amounts are changing and you have to adjust your tax.
The new or changed forms would be
Form 5329
Schedule 2 Line 8
The penalty goes on 1040-X Line 10.
Do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

Done this way, you sign 1040-X, not 5329."

So, at this point I am very clear on what I need to do for 2022 and I am going to start the process to amend 2022 tax return and pay penalties by end of this week.

However, confusion starts with tax return for 2023 as I am unable to put together logical steps to undergo and complete the process. I am clear that I have to pay 6% for calendar year 2023 also but how to combine that with withdrawals for 2023 and when is the best time to file, so as not to incur any more penalties and issues, is what is the source of my confusion. 

Based on my earlier understanding, I was planning on amending 2023 return before Oct 15, 2024 for two reasons:
(a) considering that part of the contributions/earnings were removed just before and shortly after filing my 2023 return on April 15, 2023 and the way I understood from earlier conversations and reading IRS manuals that I must amend 2023 return before oct 15, 2023 to account for contributions removed after April 15, 2023 (but before Oct 15, 2023) and not be penalized.  However, from your recent post it appears that it is not the case, and 2023 tax return can be amended next year after I receive 1099-R's for the distribution. I hope what I understood is correct.

(b) Biggest source of my confusion was that all 2023 contributions/earnings removed will be reported as distributions for 2024 (on 2024 1099-R's) and would need to be reported on 2024 1040 lines 4a & 4b. They don't have any direct bearing on 2023 tax return. Correct?  So for 2023 tax, amendment just needs to report withdrawals (on 5329's for me and my wife in section III??), and any age penalty on earnings withdrawn (at this time there is none). So, your suggestion that I should wait until next year to do so, is it just to make sure that they go with the codes on 1099-R? I don't have any issue either way, filing it next year or this year as I had originally planned but just want to make sure that I am not adding additional issues or penalties by doing so.

Maybe it is asking too much but I will appreciate it and it will be help immensely if you can breakdown the easy steps/forms to file with timing for 2023 amendment and any extras for 2024, the way you broke it down for 2022 above.  Thanks

#fanfare

[fanfare]

"reported as distributions for 2024 (on 2024 1099-R's) and would need to be reported on 2024 1040 lines 4a & 4b"

 I responded earlier to this point above also.

You are not attentively reading.

This goes on your 2023 tax return, not 2024 tax return.

so, for 2023 you will be amending to report both Case 1 and Case 2.

The incorrect advice  from "Expert" should be disregarded.

In my opinion it is easier to do the forms by hand than to struggle with TurboTax amend process.

Based on the info you have now, it is possible to do the amendment now.  Note: You can use TurboTax to calculate the new tax using the override feature - that does not involve the AMEND command.

October 15 is a deadline only in the sense that the e-File turns off then. After that date, only paper file is possible.

You have to file the 2022 return on paper so you will know how to do that for 2023.

--

You do have a messy problem but I can't hold your hand step by step to resolve it.

The main reason is TurboTax is not designed to make the solution easy for you, but instead difficult for you.

@msv1 

@msv1 

[fanfare]

CAUTION: before doing anything, make a paper copy of the originally filed tax return, 

You can also preserve it by saving it under a different name i.e. "2022 original e-File.tax2022"

You will need it to amend.

@msv1 

[fanfare]

see here for another Case 1 problem.

Maybe this will crystallize your understanding of how to report your Case 1 situation.

https://ttlc.intuit.com/community/retirement/discussion/excess-roth-ira-contribution-2023/00/3362169

@msv1 

[msv1]

Thanks. Appreciate your patience & the feedback. The reference is helpful in my understanding. It may not make any difference but in the case, you referenced, it is subtle different from mine.

1. I have a carryover contribution from 2022 which I need to pay 6% penalty. The problem with that is if I try to use turbo tax, it doesn't allow me to allocate eligible contributions to my wife's roth IRA. I removed the 2022 contributions assigning all eligible contributions to my wife's IRA and removing mine. TT is not letting me do this switch for 2022 or 2023. As you also suggested, I have decided to do 2022 amendment manually, so I can assign correct distribution. However, for 2023 amendment, using TT to avail of e-file before Oct 15, 2024 may not be available to me, as it will again assign wrong contributions to mine and my wife's Roth IRA.  So, I may be stuck with filing 2023 manually as well. 

Unless I can find a way to assign correct contributions/removals with TT for 2023 I have no choice but do 2023 amendment manually where I have to figure out which forms to submit and how to properly fill them. Thats where my struggle is. Following is where I stand with respect to 2023 amendment (and missing pieces) :

1. Do two 5329s, one for myself and other for wife to pay penalties on 2022 carryover excess (and to reflect any 10% penalty on 2023 contribution earnings (won't be needed if this penalty is not there - but I can't seem to find the reference) removal.  Not sure if Schedule 2 is needed for it this time for 2023 amendment.

2.  Not sure if Two 5329s for 2023 excess contribution removal for self and wife are needed (since these contributions were considered removed intime before oct 15, 2023).  Schedule 2 (??)

3. On 1040 distributions are indicated in 4a but I don't know where on 1040X these distributions (of excess contribution removal) will be recorded.

4. For earnings, based on the case you referenced, I need to add up all earnings on 2023 contributions (for me and my wife) and add it to my AGI  (1b) on 1040X (correct??)

5. Add fed withholding for earnings removed to line 12 B on 1040X and provide explanation in part III.

6.  From what I read in the case you referenced, I don't need to generate 1099 R's to attach to 1040X and keep them for records when I receive them from my broker in 2025. 

7. Since I am doing this manually, do I need to write at the top "pursuant to......" notation you indicated earlier?

8. I can't think of any other information/forms I have to provide to complete 2023 amended taxes now

Thanks for your input and help!

#fanfare

[fanfare]

in TurboTax 2022,  open your originally filed tax return.

Enter the AMEND process.

--

go to Forms Mode.

Open Form 5329-T.

note the SSN and enter the excess on Line 23 and Line 24

Your penalty is on Line 25

Repeat for Form 5329-S.

open Form 1040-X, enter Part III Explanation.

Save the file.

Print 1040-X, Schedule 2, Form 5239-T, 5329-S

You are done with 2022

-----------

In TurboTax 2023 do the same but enter the amount carried forward from 2022 onto Line 18 instead of Line 23. put zero on line 20.

Enter 1099-R to put your correct gross distribution numbers on 1040 Line 4a,  and 4b.

The simplest way is to use Code 7 in box 7 and do check the IRA box, even though you have a Roth IRA.

[This is where it gets complicated  but  I won't go into it at this time]

Repeat with a 1099-R for spouse.

complete 1040-X Part III

Save the file.

Print 1040-X, Schedule 2, Form 5239-T, 5329-S

You are done with 2023.

----

When amending on paper. Do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

You should be able to e--File the 2023 amended tax return.

==

The reason this is confusing is you are reporting penalty on a 2022 excess, and reporting earnings removed related to another excess, after filing.

You have to explain why you are amending early.

Ordinarily you would do the amendment in February 2025, with a real 1099-R.

The 2022 excess was removed in 2024, not 2023.

Also explain that you are leaving Form 5329 Part I empty because you know there is no early withdrawal penalty.

@msv1 

------

[msv1]

"Wait until you receive the 1099-R forms before you amend your 2023  tax returns. The 1099-R forms you receive will (hopefully) be coded properly and likely won't require you to amend.  Since it will be a non-taxable return of your excess contribution plus your growth, only the growth will be taxable."

Would you please elaborate on the highlighted portion of your response and explain why I may not need to amend 2023 taxes. Considering that I have to pay another round of 6% penalty for "2022 carryover" with 2023 taxes and I would be doing 5329s for 2023 , would that affect your highlighted response in any way?  

#KarenL

[msv1]

I hope it works out as easy and straight forward for 2023 amendment as you are suggesting. I had pretty tough time trying to get TT to populate 5329's for 2022 accurately for me and my spouse when using automated step by step instructions (this was before our discussion on this forum).  Once it didn't do it correctly, I reverted to filling forms myself on TT, it still won't change anything. So finally, I decided to do everything manually after our discussion here and it wasn't that difficult. However for 2023 amendment, as I am interested in e-file 1040X, I hope I don't get into similar issues and TurboTax allows me to fill the forms accurately.

Couple of other 2023 amendment issues below related to what you have said.

1. "You have to explain why you are amending early."  What kind of explanation is necessary?

2. "Also explain that you are leaving Form 5329 Part I empty because you know there is no early withdrawal penalty." Why is that required?  Do I have to do that for both 2022 and 2023?

3. " The simplest way is to use Code 7 in box 7 and do check the IRA box, even though you have a Roth IRA." I  had read in a different community forum that someone got it issues doing just that and received a notice from IRS. He/she had to go through lot of effort trying to get things/information right with IRS on that. Any comments?

3. Now assuming once I do 2023 tax amendment in next couple of months with the disbursement information that will be received on "2024 1099-R's" in 2025, what do I do with those 1099-R's that i receive in 2025. Do any of the distribution information included on 1099-Rs go on 2024 taxes to be filed in 2025? or do i just file them for record and need not worry about it. Either of the two options don't appear good. If I repeat the information on 2024 taxes, won't that cause confusion and possibly dual taxation?

@fanfare