IRA excess withdrawal loss

[Yxx32]

Hi, I opened a Roth IRA in 2021 and contributed $6000. Turns out I over contributed by $6000. My account is also at a loss currently in 2022 (around $4000 currently so $2000 loss). When I use TurboTax, it asked me what my account balance was at the end of 2021 and it was $7000 back then when my stocks were doing well. It then asks me how much I will withdraw. Now if I close my account and withdraw the $4000 current value, how do I indicate that is EVERYTHING and I'm not just withdrawing a portion of the excess? 

[DanaB27]

You will enter the full excess contribution amount of $6,000 on the penalty screen as withdrawn by the due date.

Yes, you will enter the account balance for the end of 2021 when TurboTax asks.

You will get a 2022 Form 1099-R  in 2023 with codes P and J for the withdrawal of excess contribution and loss. This 1099-R will have to be included on your 2021 tax return and you have two options:  

• You can wait until you receive the 1099-R  2022 in 2023 and amend your 2021 return or
• You can report it now in your 2021 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 2022 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything in 2022 tax return but the withholding will be applied to 2022.

To create a 1099-R in your 2021 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 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution minus loss)
7. Box 2a enter $0
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 2022 1099-R.

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

[Yxx32]

@DanaB27 Thank you! This is definitely helpful. I'm filling it out now and  did have a few more questions I'm hoping you could help with. I'm trying to go the route of reporting it on my 2021 Tax return before actually getting the 1099-R.

1. Turbotax is asking me for the Payer information. I use Fidelity but since I just withdrew my over contribution, I'm not going to be able to get a 1099-R before the deadline. Can I look up what their Payer information is (name, address etc) elsewhere? I found the TIN from the 5498 I got but I'm not sure whether I'm supposed to use the mailing address from that form because it's a PO box for "NATIONAL FINANCIAL SERVICES LLC
Agent for Fidelity Management Trust Company" and not Fidelity itself.

2. I'm married and filing jointly with spouse. She over over contributed 6000 as well but when she withdrew, it was 6185. In that instance, would I follow the same steps as you've outlined above but put 185 in box 2a?

Thank's again!

[DanaB27]

1. Please call Fidelity to verify that you have the correct payer information.

2. Yes, you would enter $185 for box 2a for your spouse since she had earnings. The earnings will be taxable and subject to the 10% early withdrawal penalty if your spouse is under 59 1/2.

1. Click on the "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R”
3. Answer "Yes" to "Did you get a 1099-R in 2021?"
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning) $6,185
6. Box 2a enter the earnings $185
7. Box 7 enter J and P
8. Click "Continue"
9. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
10. Click "Continue" after all 1099-R are entered and answer all the questions.
11. 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 click "Continue")