The key is the code in Box 7, Form 1099-R. It seems like it should be 'P'.
- 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2022.
- P—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021.
Enter in Box 2a only the earnings which is what is taxable in 2022. If you removed the excess on time there is no excise penalty of 6%. However if you're under 59 1/2, the government will also charge you a 10% early withdrawal penalty on any earnings you withdraw. This will trigger Form 5329 in TurboTax because of the age (if you are under 59 1/2).
- If you catch your mistake before the tax filing deadline for the year, AND you remove the excess before you file your taxes, there is no 6% penalty. You have to remove your excess contribution and any earnings attributable to that excess contribution.
Using the correct code in 2022 should eliminate any taxation of the distribution in 2022 with the exception of the earnings. Double check the entries and your code on your Form 1099-R.
@mmgaeta
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