Doing my 2021 taxes, TurboTax flagged that I had made excess Roth contributions. I chose to remove the excess contributions. My Roth is at Vanguard, and I went online to process the removal. They calculated the earnings and I have received the money: $7,000 in contributions and $21.31 in earnings. Vanguard says it will send me a 1099-R "in the year after the excess was removed", so that sounds like a 2022 1099-R sent to me in 2023.
Now the question is, how to handle this? I did some research and it looks like my choices are either to a) do nothing until I get the 2022 1099-R, at which time I will have to amend my 2021 taxes or b) handle it in my 2021 taxes by creating a substitute 1099-R to represent the distribution. I am also under 59 1/2 so I understand a penalty comes into play as well.
I would rather not amend my 2021 taxes and think I can easily generate the substitute 1099-R. My understanding is that it would show:
- Box 1: $7,021.31
- Box 2: $21.31
- Box 7: P & J
- Specify this is a 2022 1099-R
Regarding the penalty, I think that once I enter this 1099-R, TurboTax will automatically handle calculating that and adding the proper form to my return.
When I get the 1099-R from Vanguard next year, my understanding is that I would disregard it.
Do I have all this correct? This is a little more complicated than my taxes usually get, so I'd appreciate any comments or advice.
