Retirement tax questions

1. You will request to withdraw the excess contribution plus earnings for 2021 and 2022. The 2021 excess plus earnings have to be removed by the due date of the 2021 return and the 2022 excess plus earnings have to be removed by the due date of your 2022 return.

Therefore, you can decide if you want to wait to remove the 2022 excess but please be aware the 2022 earnings will be taxable in 2022 and are subject to the 10% early withdrawal penalty if you are under 59 1/2. The earnings from your 2021 excess will be reported on your 2021 tax return.

Even if you request to have both excess contributions plus earnings withdrawn at the same time in 2022 you will get two 2022 Form 1099-R on for the 2021 excess contributions with code P and J (belongs on the 2021 return) and one for the 2022 excess contribution with code J and 8 (belongs on the 2022 return).

2. You will request the withdrawal of the excess contribution plus earnings and your financial institution should be able to calculate the earnings for you.

3. The earnings are calculated: Contribution x (Adjusted Closing balance - Adjusted Opening balance)/ Adjusted Opening Balance

(§ 1.408-11)

4. Yes, you will withdraw the whole amount. If your wife had a loss then your distribution will be less than the contribution amount but you will enter the full contribution amount as withdrawn on the TurboTax penalty screen during the IRA contribution interview.  

Please review What happens if I made an excess Roth IRA contribution for additional options.

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of the 2021 excess 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 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 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")