ROTH contribution and over income limit

Forum|Forum|4 years ago
February 2, 2022
1 reply
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I contributed to a ROTH, then realized I hit the top of the income limit for contributions. I could not recharacterize to a traditional IRA, because my IRA is a deductible IRA, and this money would not be, again because of the income limit.

I just pulled the money from the IRA and put it into a plain Investment account.

Do I need to report anything on my 2021 tax return because of this??

Not A Product Question

MinhT1

Level 15

If you withdrew your 2021 excess contribution to your Roth IRA before the due date of the 2021 tax return (April 18, 2022), make sure that you also withdraw the related earnings.

On your 2021 tax return, you do not report the excess contribution as it has been withdrawn. The earnings have to reported in 2021 and taxed. These earnings are also subject to 10% early withdrawal penalty if you are under 59 1/2.

When you receive the 2021 form 1099-R (in 2022) for this withdrawal, there is no further action needed.

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timmytesAuthor

Level 2

Thanks.

The ROTH money was pulled out in 2022 if that makes a difference on what year I report.

Would this be the case for the $500 I contributed to the traditional IRA, then again pulled out?
My traditional IRA is a deductible IRA. I didn’t want to put in any after tax money and track it…..

thx

DanaB27

Level 15

As MinhT1 stated you will report the withdrawal of the 2021 excess contribution plus earnings on your 2021 tax return. Only the earnings will be taxable in 2021 (IRS).

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of excess contribution and earnings. 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:

Login to your TurboTax Account
Click on the "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Answer "Yes" to "Did you get a 1099-R in 2021?"
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2a enter the earnings
Box 7 enter P and J
Click "Continue"
On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.

In regards to your return of the $500 traditional IRA contribution, the IRS states:

"If you made IRA contributions in 2021, you can withdraw them tax-free by the due date of your return. If you have an extension of time to file your return, you can withdraw them tax-free by the extended due date. You can do this if, for each contribution you withdraw, both of the following conditions apply.

You didn’t take a deduction for the contribution.
You withdraw any interest or other income earned on the contribution. You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income earned on the contribution may be a negative amount."

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