Retirement tax questions

Yes, you will have to amend the 2021 tax return to pay the 6% penalty on the 2021 excess. All you need to do is to add the Roth IRA contribution and then TurboTax will create Form 5329 with the 6% penalty. Please see How do I amend my federal tax return for a prior year?

You also will have to pay the 6% penalty for the 2021 excess on your 2022 return because the excess wasn't removed until 2023. But you don't have to pay the 6% penalty for the 2022 excess since you removed it before the due date. 

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth IRA contribution
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2021
7. On the penalty screen enter the contribution amount for 2022 as removed by the due date.

The 2021 excess should have been removed as a regular distribution without earnings since it was removed after the extended due date of the 2021 return and should be reported on the 2023 Form 1099-R with code J (or code T if you are over 59 1/2).

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of the 2022 excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 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 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 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 2022?"
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 2023 Form 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 of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.