Excess ROTH Contribution

[3D-Q]

Thank you for posting this (link below) and seeking additional information please.  https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099-r/happens-made-excess-roth-ira...                                                                                                                    An excess ROTH contribution was made in 2021 for tax year 2021 and just discovered only this year .  A 6% penalty on the excess contribution amount (no earnings) will need to be paid and amended returns filed for each year till withdrawal is made.  Is there a specific date in 2024 when this withdrawal for the 2021 excess contribution should be made?  I assume a 1099-R for this distribution will be received in 2025 for tax year 2024 - will this be a qualified or non-qualified distribution?  And will this withdrawal be reportable on Turbo Tax and how?   Many thanks.                                                                                                                                      

[ThomasM125]

The withdrawal in 2024 must be done by the due date of Form 1040 from 2023, April 15, 2024 for most tax filers. It is best to report that on your 2023 tax return rather than have to amend it to report the Form 1099-R received in 2025. You can do that by following these procedures:

To enter a refund of excess IRA contributions in the current year follow these steps:

1. Go to the personal income section of TurboTax 
2. Find the Retirement Plans and Social Security menu option
3. Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
4. Choose Add Another 1099-R
5. Choose I'll type it in myself
6. On the screen that says Tell Us Which 1099-R You Have choose I need to prepare a Substitute 1099-R
7. Enter the distribution amount in box 1 of the substitute 1099-R
8. Enter the earnings in box 2(a)
9. Enter code "P" in box 7
10. When asked about the year on the form 1099-R, say it is for the year following the year you are working on

For the distribution to be qualified, you would have to be over 59 1/2 years old and the funds would have to be in the account for five years.

[3D-Q]

@ThomasM125 Posted a link on my original question which states that:  

• Remove only the excess contribution after your tax deadline: After you file, you can request a regular distribution to remove the excess contribution (without earnings) between October 17 and December 31, 2023. You’ll have the 6% excess contribution penalty on the 2022 return, but you can keep the earnings in the Roth account, and can avoid the penalty on next year’s tax return. 

Since this was a 2021 contribution, it appears that the earnings do not need to be withdrawn, following the explanation above.  Box 2a refers to Taxable amount.  When I click on "Learn More", it says that  "If the distribution is from a Roth IRA, box 2a should be blank. This does not necessarily mean that the entire amount of the distribution is nontaxable. The taxable amount of a Roth IRA distribution is computed on Form 8606. However, for the distribution before the due date, including extensions, of the tax return of contributions to a Roth IRA, the taxable amount should be shown in box 2a.  If the distribution is a return of a contribution, box 2a should have only the earnings on the amount shown in box 1."    Question:  Does this change the instructions you provided (box 2A = earnings and box 7 = P)?  Also an additional question - would need to file amended returns for 2021 and 2022 to pay 6% penalty (including 2023), what form is used and can you please provide instructions.                                                                                                                                                    Not a tax expert here and seeking your guidance.   Thank you and appreciate your input.  

[ThomasM125]

You will be penalized for not withdrawing your excess contribution for each year if you didn't do so by December 31 of the year, accept for the first year of excess since you can correct that by the due date of your tax return. This would apply for any year you are over the limit for allowed contributions.

To amend your returns, you will see an option to do that on your home page when you log into TurboTax. Look at the bottom of the page, under Your Tax Return and Documents. Click on the year you want to amend and choose the Amend (Change) option.

Once in the amended return, you will enter you IRA contributions like you should have when you originally prepared your return. You will be asked to enter your prior year IRA excess contributions:

TurboTax will calculate your excess contribution penalty based on your income and IRA contributions entered.

[Edited 3/26/24 at 10:59 AM EST] @3D-Q