I unknowingly contributed to Roth IRA in 2023 for 2023 without knowing that I no longer qualify to contribute due to income limit. I filed the extension. Now I have done a timely corrective withdrawal of the excess contribution. I would like to know how to do it properly in turbo tax to file this correctly.
1. I am over 59 1/2. I assume I do not need to enter code for early distribution though it is a corrective withdrawal?
2. For mine, the distribution is done in 2024, but earnings were to be taxed in 2023. But my husband's contribution was done in 2024 for 2023 and the corrective withdraw happened in 2024. Do I only enter 1099R for mine or should I also enter his?
3. I have earnings reported by the financial institute, the earnings should be reported in 2023 tax which I have yet filed (extension filed). I also did have federal tax withholding, but no state. (do I enter 1099 R in 2023 tax as well as in 2024 later on?)
4. No way of knowing whether the earnings were all capital gains or interest. The 1099R will not be available until 2025.
5. I would like to report this in 2023 tax so I do not need an amendment later.
6. Do I need to consider to use a regular 1099R or a substitute 1099R since we don't have the form yet?
7. I read discussions about code 8 vs P. Confused why some people say to use P in my scenario since the code says it is for year 2022. Is it because this 1099 R is going to be done for 2024, but we are reporting it in 2023 and interpret P as for previous year?
I need some step by step help to resolve this mess we created accidentally.
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1. I am over 59 1/2. I assume I do not need to enter code for early distribution though it is a corrective withdrawal?
In Turbotax, starting by reporting that you made a Roth contribution. When the program tells you that is not allowed and considered excess, the program should guide you through the steps.
2. For mine, the distribution is done in 2024, but earnings were to be taxed in 2023. But my husband's contribution was done in 2024 for 2023 and the corrective withdraw happened in 2024. Do I only enter 1099R for mine or should I also enter his?
Unclear on the question. If you are withdrawing an excess 2023 contribution before the deadline (October 2024 if you have an extension), the earnings must also be withdrawn and reported as taxable earnings on your 2023 tax return, even though the actual transaction occurred in 2024.
3. I have earnings reported by the financial institute, the earnings should be reported in 2023 tax which I have yet filed (extension filed). I also did have federal tax withholding, but no state. (do I enter 1099 R in 2023 tax as well as in 2024 later on?)
Yes, you get credit for the withholding, see below.
4. No way of knowing whether the earnings were all capital gains or interest. The 1099R will not be available until 2025.
That doesn't matter. All earnings in a Roth IRA (if they are taxable at all, which depends on the circumstances) are taxed as ordinary income. There are no special rates for capital gains in IRAs.
5. I would like to report this in 2023 tax so I do not need an amendment later.
It must be reported on your 2023 tax return.
6. Do I need to consider to use a regular 1099R or a substitute 1099R since we don't have the form yet?
You will enter a substitute 1099-R form electronically in Turbotax. You do not create or need a paper copy.
7. I read discussions about code 8 vs P. Confused why some people say to use P in my scenario since the code says it is for year 2022. Is it because this 1099 R is going to be done for 2024, but we are reporting it in 2023 and interpret P as for previous year?
In Turbotax, create a substitute 1099-R for 2023. Gross distribution (box 1) is the total amount of the corrective distribution, both earnings and contributions. Box 2a Taxable amount is the earnings portion only. Box 4 is the federal tax withheld. For box 7, use code 8. This is how you get Turbotax to put the earnings in the correct place on form 1040. (If you were filing on paper not using software, you would not need a substitute form.)
At the end of 2024, you will get an official 1099-R from the IRA broker showing the same information, with code P again. Enter this 1099-R next year even though it is a "duplicate" of the substitute 1099-R. Code P on the official 1099-R will indicate "earnings on returned contribution that were taxable in 2023" so Turbotax will know not to tax it again. (But you need to enter the 1099-R even though it is not taxable, because the IRS will be looking for it in their matching system.)
If you also have an "official" 1099-R for ordinary (normal) withdrawals you made in 2023 separate from the contribution issue, you need to enter it as well, separately from the substitute 1099-R for the corrective distribution.
Thank you Opus 17 for detailed answers.
For #2, I stated two situations: I have contributions in 2023 for 2023, but withdrawal done in 2024. My husband's excess contribution for 2023 is done in 2024 and withdrawal of the excess is also done later in 2024. Do we need to complete a substitute 1099R for my husband in 2023 tax return, too?
Based on IRS publication reading, it seems his earnings should be filed in 2023, but I read some other discussions on the Intuit site that his earnings should be reported in 2023. Would love some clarification here.
Oops I had a typo in my last post.
In paragraph
"Based on IRS publication reading, it seems his earnings should be filed in 2023, but I read some other discussions on the Intuit site that his earnings should be reported in 2023. Would love some clarification here."
I meant to say:
"Based on IRS publication reading, it seems his earnings should be filed in 2023, but I read some other discussions on the Intuit site that his earnings should be reported in 2024. Would love some clarification here."
The bottom line question is whether his earnings from this corrective withdraw should be taxed in 2023 or 2024 when his contribution for 2023 was made in 2024.
Thank you
If a contribution is for tax year 2023 (including contributions made before the filing deadline in 2024 but treated as 2023 contributions), then the earnings that are withdrawn as part of the corrective distribution are reported on the 2023 tax return.
According to dmertz, it doesn't matter in which year you made the disallowed contribution for 2023.
The allocable earnings are reported on the 2023 tax return, when removed before the due date, including extensions..
I completed return as you suggested and created 2 substitute 1099 R forms, one of me and one for my husband. It resulted an additional tax (6% on one of our excess contributions, I can't tell if it is from mine or my husband's, but only one of ours) as additional tax. Since the withdrawals were timely, we should not have this 6% (in addition, we both are over 59 1/2, no penalty even if it is regular distribution). So I am not sure why and what went wrong with the Turbo Tax. It did not do that for both 1099R sub form, only for one. The difference here is it is my contribution in 2023, withdraw in 2024, and his contribution in 2024 and distribution in 2024. Is there a bug in Turbo Tax or did I miss a code? I used code 8 for both forms.
Unfortunately, I did not find this out until after I filed the tax. Now I will need to do an amendment. Sigh.
Code 8 doesn't work.
You have to use code PJ as you surmised originally.
Tell Turbotax the 1099-R has a date of 2024.
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