dmertz
Level 15

Retirement tax questions

First, any distributions that occur in 2023 will be reported on 2023 Forms 1099-R that you will receive in early 2024.

 

See https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-failure-to-limit-contributions-for-... 

 

My biggest question is which portion of the 2022 additions is considered to have the excess contribution.  I'm guessing a bit here, but it seems that the excess was in the after-tax contribution.  If the rollover to the Roth IRA of the after-tax sub-account was immediate, there would have been no gain while in the after-tax sub-account.  The distribution from the after-tax sub-account would have included the  excess and that excess now constitutes an excess contribution to the Roth IRA.  For the distribution from the after-tax sub-account that was deposited into the Roth IRA I would guess that Fidelity would report on 2022 Forms 1099-R with code G  for the portion rolled over that was not excess and code 8 the portion that was excess;  Fidelity should already know that you had total additions for 2022 exceeded $61,000 and I would expect them to treat part of the distribution as a return of the excess.  If there were any investment gains before the rollover to the Roth IRA, the gains should be considered to have been distributed as part of the distribution that was rolled over, so I would guess that they would be shown in box 2a of the 2022 code-8 Form 1099 and will be taxable on your 2022 tax return.  You'll really need to confirm all of this with Fidelity, though.  (Except for the involvement of after-tax contributions, this seems similar to a situation where an excess contribution resulted from a failure of ACP or ADP testing and there was an intervening rollover to a Roth IRA.)

 

For a return of excess contribution from the Roth IRA in 2023, the 2023  Form 1099-R will have codes J and P.  Investment gain or loss is calculated across the entire account.  The amount distributed will be the excess adjusted for investment gain or loss.  If there is a gain, that gain will be shown in box 2a of this Form 1099-R and will need to be included in income on your 2022 tax return.  (Makes sure not to have any taxes withheld from this return of contribution.  Tax withholding would be credited on your 2023 tax return even though the corresponding taxable income is reportable on your 2022 tax return.)

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