Fixing Excess Roth IRA Contribution from Prior Year

Forum|Forum|3 years ago
April 20, 2023
1 reply
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I made a $6k Roth IRA contribution in 2021. I then had unanticipated income in 2021 which made me ineligible from contributing any money to a Roth IRA that year. I realized this while filling my taxes in Feb 2022 and submitted forms with my brokerage (Schwab) to remove the excess contribution. Although I had originally contributed $6k to my Roth IRA, stock market performance brought the amount in my Roth IRA account down to $4.5k as per calculations done by Schawb when I requested the removal of my excess contribution. Schwab withdrew the $4.5k amount in Apr 2022. I did not receive any forms specific to this withdrawal for the year 2021. I had previously been provided with Form 5498 for 2021, which listed the $6k amount. Schwab also provided me with a 1099-R form for 2022, which indicates the $4.5k amount as the gross distribution.

I then filed my 2021 taxes in June 2022 (I had requested a tax extension).

While working through my 2022 taxes this year, I am doubting whether my 2021 tax return was filed correctly.

Questions: Was my 2021 tax return incorrect? If it was incorrect, do I need to file an amendment for 2021?

Do I need to report the loss of $1.5k from my 2021 Roth IRA?

Is there a special step I should take when filing my 2022 taxes? (I have not submitted my 2022 tax return yet - I am located in CA and our tax deadline was extended until October).

Thank you in advance for your insights!

Not A Product Question

Opus 17

Level 15

If you removed the excess before the deadline, you should not have reported an excess on your 2021 tax return. You should not have a form 5329 as part of your 2021 return that calculates a penalty.

That's all you need to do. If there were gains, they would be taxable and be subject to a 10% penalty for early withdrawal, but since you had a loss, you don't have anything further to report.

No, you can't take any kind of deduction for the $1500 loss in the Roth IRA, IRAs work differently than regular investments.

It sounds like everything was correct and you don't need to do anything special for 2022. Do you have a more specific concern?