@sabasu wrote:
I am in a similar situation and I stumbled upon this post while searching thru the forums for an answer to my situation.
I inadvertently made an excess Roth contribution ($7000) for tax year 2020. I withdrew the amount yesterday (Jan 22). Now, I understand I need to file an amended return for 2020. My Roth IRA brokerage is saying that I will receive a 1099-R only in 2023.
My questions are as follows :
1. For 2020, do I need to withdraw both the excess contribution ($7000) and the NIA (earnings)? I read somewhere, that withdrawing only the excess contribution is enuf, earnings need not be withdrawn.
2. Since I am below 59.5 years of age, will this withdrawal of excess contribution ($7000) attract an early withdrawal penalty. I was under the impression that the early withdrawal penalty for a Roth account is only applicable to the EARNINGS and not my contribution (which has been already taxed). And since I have not withdrawn any earnings, do I still need to pay Early Withdrawal Penalty on my contribution only.
3. Can I file the amended 1040X for 2020 now, even without the 1099-R. In that case, what would be my explanation?
Nothing in the above discussion applies to you, because the deadline to remove an excess contribution for 2020 was October 15, 2021. You have to deal with an entirely separate set of rules.
For 2020, you have an excess contribution. It is subject to a 6% penalty. This should already have been applied, if you told Turbotax that you contributed the $7000 and you weren't eligible based on your other tax facts. Check your 2020 return for a form 5329, which calculates the penalty. If you did not pay a penalty in 2020, then you need to amend your 2020 return. This has nothing to do with withdrawals (a 1099-R). You report your contributions, and if you aren't eligible, Turbotax will tell you to remove the excess. When you answer that you can't or won't remove the excess before the deadline (because it is too late), then Turbotax will assess the penalty.
Moving on to 2021. If you were eligible to make contributions for 2021, you can count the 2020 excess as a new 2021 contribution and that will zero out the excess. If you contributed $7000 for 2021 already, but removed it in 2022, then what should happen is that the excess from 2020 will be applied to your 2021 contribution limit, and no further penalty will be assessed. If you are not eligible, then because the excess from 2020 was still in your account on 12/31/2021, you will be assessed another 6% penalty (because you can't perform a removal of 2020 excess contribution in 2022. It's too late). Either of these calculations will also happen on your 2021 tax return on form 5329. You will need to file the amended 2020 return first, because the numbers from the 2020 form 5329 will carry over to the 2021 form. (Again, no 1099-R is required or will be issued, since this is a contribution problem, not a withdrawal problem.)
Moving on to 2022, since you have withdrawn the 2020 excess contributions in 2022, there will be no further assessment of the 6% penalty for excess contributions on your 2022 tax return (to be filed 13 months from now). Withdrawal of earnings was not required, but if you did withdraw earnings, the earnings will be subject to regular income tax if the Roth IRA is less than 5 years old, and will be tax-free if the Roth IRA is more than 5 years old.
You will not have to pay any 10% penalty for early withdrawal because of your age, but you will have to pay regular income tax on any earnings that you withdraw if the Roth account has been opened less than 5 tax years, even if you are over age 59-1/2.
