Retirement tax questions

1. Yes, you can file the amended returns to include Form 5329. 

On your 2021 return you will enter the Roth IRA contribution for 2021 and TurboTax will automatically calculate the penalty and fill out Form 5329.

On your 2022 return you will enter the Roth IRA contribution for 2022 and enter that you had an excess contribution from 2021.

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 contribution for 2022
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 (if it wasn't carried over).

On your 2023 return you will enter the Roth IRA contribution for 2023, enter the excess contribution from 2021+ 2022 and then enter that your withdrew the excess contribution for 2023. TurboTax will only calculate the penalty for the 2021 and 2022 excess contributions.

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 for 2023
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 + 2022.
7.  Continue until the penalty screen and enter the 2023 excess contribution amount withdrawn.
    

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of the 2023 excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
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 2024 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 "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

2. No, Form 8606 doesn't apply for 2021 and 2022 returns. TurboTax will create all Forms necessary. The penalty calculated on Form 5329 will show on Schedule 2 line 8.

3. Yes, this is correct. You will also have to pay the 6% penalty on your 2023 return for the 2021 and 2022 excess contribution since it wasn't removed until 2024. You will enter the 2024 Form 1099-R with code J for the withdrawal of the 2021 and 2022 excess contribution (taken as a regular distribution) next year on your 2024 tax return and then it will eliminate the penalty for 2024.

4. No, the distribution happened in 2024 not 2023 therefore you will still have to pay the penalty for the 2021 and 2022 excess. The 2023 excess won't be entered since you withdrew it by the due date. For your information, if you are in the phase out range then the earnings from the withdrawal of the excess contribution will increase your Modified Adjusted Gross Income (MAGI) and can create a new excess. Therefore, it is best to remove a little extra to avoid this.

No, you won't have a 10% early withdrawal penalty on the earnings because of law changes. Please make sure you enter the earnings on the "Did you use your IRA to pay for any of these expenses?" screen under "Corrective distributions made before the due date of the return".

5. No, you can go ahead and file the 2023 return.