Get your taxes done using TurboTax

I believe I found the answer to my previous question: earned income is the same as taxable income, at least with my situation. So I did have an excess Roth IRA contribution of $6000 for 2021.

I called the IRA custodian today and had the $6000 removed along with the ~$600 in earnings. I understand I have to pay taxes at my normal tax rate on the earnings and possibly a 10% penalty on the earnings b/c I am <59.5 yrs old. 

 I want to remedy this situation now/this year instead of waiting til 2023 when I get my 1099-R for the excess contribution, but I am not sure how to do it in TT. 

I know you are not a paid tax consultant and do answer questions for free, so I want to be respectful of your time. Would you mind answering a few questions for me? I will keep it as brief and focused as possible. Thank you in advance.

1. Should I edit my 2021 tax return now letting the IRS know I withdrew the excess Roth contribution or do I have to wait til 2023 for the 1099-R? I know I am not taxed on the returned excess contribution, but I am taxed on the earnings.

2. If it’s possible (and even recommended) to edit my current tax return now, since I withdrew the excess contribution/earnings before the tax filing deadline of 4-18-22, does the IRA treat the excess contribution as though it never happened and no 6% penalty will apply? (I haven't filed my 2021 return and caught the situation before I submitted my return so this is not an amended tax return, but instead just an edited return)

*If so, do I enter the corrected Roth IRA contribution amount of $0 (my original contribution amount of $6000 minus the excess contribution that I withdrew of $6000=$0). Do I enter $0 when TT asks about any “prior year excess contribution”? 
**So, is it as simple as entering $0 for my Roth IRA contribution for 2021 when TT asks how much I contributed to my Roth in 2021?  

If so, then I assume Form 5329 would not be generated by TT b/c there is no excess contribution to have me pay the 6% tax on the excess contribution?  

3.  THIS IS MY BIG QUESTION:

How/where do I enter the taxable earnings (the earnings on the excess Roth contribution) in TurboTax? TT does not prompt me to enter the earnings at all. 

I have read that the earnings are taxable in the year I actually made the contribution, not in the year I withdrew it, so the earnings are taxable in 2021 and therefore the earnings should somehow/somewhere be included in my 2021 tax return and I should not wait to report the earnings til 2023 in my 2022 tax return? Is this true?  

*If I do need to report the earnings I gained on the Roth excess contribution, do I enter the excess distribution/earnings on Form 1040 Lines 4a and 4b?
 Or is that only if I received a 1099-R (which again I won’t til Jan 2023) or if yes, I do indeed enter the earnings on Line 4a and 4b, do I need to make a substitute/dummy 1099-R?     
If it is not wise to create a dummy 1099-R if I report the earnings in my 2021 return, is there somewhere to explain the situation (I know there is an area to explain on the amended 1040-X form, but I haven't filed yet and want to avoid having to file an amended 2021 return now and/or in 2023)? 

I feel like it will be confusing to the IRS if I say I contributed $0 to my Roth in 2021 (which is now true since I withdrew the $6000 excess contribution on March 22, 2022, but yet I have taxable earnings from my excess Roth contribution withdrawal for 2021? Isn’t the IRS going to ask where the taxable earnings came from if  “my Roth contribution was $0 in 2021”)?

If I don't enter the earnings in Form 1040 Lines 4a/4b, do I enter the earnings in Form 1040, Lines 8 (“other income from schedule 1, Line 10”) or 10 (“adjustments to income from Schedule 1, line 26”)?

Or somewhere else? 

It seems like no matter where I have to enter the earnings, I will have to go to 'Forms' and manually input the numbers in the boxes by right clicking and overriding? 

4. My effective tax rate is zero (b/c my taxable income is zero), but based on with my AGI= ~$9000 that puts me in the 10% tax bracket, so what tax rate is used for my earnings on the excess contribution (0% or 10%) ?

5. Or do I not report the taxable earnings in my 2021 return b/c I won’t receive my 1099-R til Jan 2023 and should just wait to report the earnings in my 2022 return and pay taxes then?

6. If I remedy the situation now, do I still have to file an amended 2021 return in 2023 once I get the 1099-R? Or can I just ignore the 1099-R in 2023 b/c I dealt with the issue this year?

7. Are there exceptions to the 10% penalty on earnings for early w/drawal? (ie, since I had the excess contribution/earnings withdrawn to comply with the rules of Roth IRA max contributions is there an exception in this case that would make the earnings on the excess contributions be exempt from the 10% penalty??)

Thanks!

@dmertz