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2. To fix the 2021 excess contribution you will have to request a withdrawal of excess contributions plus earnings with your financial institute by the due date. If the excess contribution was because of your Modified Adjusted Gross Income (MAGI) then you might want to withdraw some extra excess because the earnings are taxable in 2021 and will increase your MAGI.

 

You will get a 2022 Form 1099-R in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This Form 1099-R will have to be included on your 2021 tax return and you have two options: 

  • You can wait until you receive the 1099-R  2022 in 2023 and amend your 2021 return or
  • You can report it now in your 2021 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 2022 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything in 2022 tax return but the withholding will be applied to 2022.

 

To create a Form 1099-R in your 2021 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 2021?"
  5. Select "I'll type it in myself"
  6. Box 1 enter total distribution (contribution plus earning)
  7. Box 2a enter the earnings
  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 2022 1099-R.
  11. Click "Continue" after all 1099-R are entered and answer all the questions.
  12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount under "Another reason" if you are over 59 1/2 (if you under 59 1/2 click "Continue")

 

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

 

 

 

 

Another option to fix the 2021 excess contribution, if your Roth contribution was limited by your Modified Adjusted Gross Income (MAGI), is to recharacterize the 2021 Roth contribution as nondeductible traditional IRA contribution and then convert the funds back to the Roth in 2022. You would have to request the recharacterization by the due date.

 

You will enter the recharacterization when you enter the contribution to the Roth IRA:

  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 “No” to “Is This a Repayment of a Retirement Distribution
  6. Enter the Roth contribution amount 
  7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
  8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
  9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

 

 

 

 

 

3. For the 2018 and 2019 excess contributions you will have  

 to request a regular distribution (without the earnings) because you remove the excess after the due date of the 2018 and 2019 tax returns. The 2022 Form 1099-R will be entered on your 2022 return.

 

You will have to pay the 6% penalty for the years 2018, 2019, 2020, and 2021.   You will have to amend your tax returns to pay the 6% penalty. 

 

In 2018 you will enter the Roth contribution under IRA contributions and you will get a warning that this is an excess contribution and TurboTax will calculate the penalty on Form 5329.

 

In 2019 you will enter the Roth contribution under IRA contributions and enter the 2018 excess on the "Enter Excess Contributions" screen. You will get a warning that this is an excess contribution and TurboTax will calculate the penalty on Form 5329.

 

In 2020 you will enter the Roth contribution (if you made one) under IRA contributions and enter the 2018 plus 2019 excess on the "Enter Excess Contributions" screen. You will get a warning that this is an excess contribution and TurboTax will calculate the penalty on Form 5329.

 

In  2021 you will enter the Roth contribution under IRA contributions and enter the 2018 plus 2019 excess on the "Enter Excess Contributions" screen. You will get a warning that this is an excess contribution and will enter that you withdrew the 2021 excess contribution amount on the penalty screen. TurboTax will calculate the penalty on Form 5329 for the excess from 2018 and 2019.


 

  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 “No” to “Is This a Repayment of a Retirement Distribution
  6. Enter the Roth contribution amount 
  7. On the "Do you have any Excess Roth Contributions" answer "Yes"
  8. On the "Enter Excess Contributions" screen enter the total excess contribution from 2019 and 2018

 

 

If your MAGI allows and you made less than the full contribution in 2020 then you might be able to apply some of the excesses to 2020. Then you would request to withdraw only the rest amount for your 2018 and 2019 excess contribution.

 

 

@sridharm 

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