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Deductions & credits
You have until Oct 15th, 2022 to withdraw the excess contribution and earnings to avoid the 6% penalty calculated on Form 5329. You will need to request the withdrawal of excess contribution plus earnings.
"If you timely filed your 2021 tax return without withdrawing a contribution that you made in 2021, you can still have the contribution returned to you within 6 months of the due date of your 2021 tax return, excluding extensions." (IRS)
You will get a 2022 Form 1099-R in 2023 with codes P and J for the withdrawal of the excess Roth contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options:
- You can wait until you receive the 2022 Form 1099-R 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 Form 1099-R into the 2022 tax return since the withholdings are reported in the year that the tax was withheld. The 2022 code P will not do anything to the 2022 tax return but the withholdings will be applied to 2022.
To create a Form 1099-R in your 2021 return please follow the steps below:
- Login to your TurboTax Account
- Click on the "Search" on the top right and type “1099-R”
- Click on “Jump to 1099-R”
- Answer "Yes" to "Did you get a 1099-R in 2021?"
- Select "I'll type it in myself"
- Box 1 enter total distribution (contribution plus earning)
- Box 2a enter the earnings
- Box 7 enter J and P
- Click "Continue"
- On the "Which year on Form 1099-R" screen say that this is a 2022 Form 1099-R.
- Click "Continue" after all 1099-R are entered and answer all the questions.
- Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are 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.
For your wife's withdrawal of the excess traditional IRA contribution and earnings, you will get a 2022 Form 1099-R in 2023 with codes P and 1.
To create a Form 1099-R in your 2021 return please follow the steps below:
- Login to your TurboTax Account
- Click on the "Search" on the top right and type “1099-R”
- Click on “Jump to 1099-R”
- Answer "Yes" to "Did you get a 1099-R in 2021?"
- Select "I'll type it in myself"
- Box 1 enter total distribution (contribution plus earning)
- Box 2 enter the earnings
- Box 7 enter P and 1
- Check the "IRA/ SEP/ SIMPLE" box
- Click "Continue"
- On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
- Click "Continue" after all 1099-R are entered and answer all the questions.
- Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")
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