2023 1099-R with PJ code

[novackb]

My wife and I over-contributed to our Roth IRAs in 2022. I requested and had the excess contribution and earnings/losses removed in February 2023 prior to submitting our 2022 tax returns. I only claimed the allowed Roth IRA contribution amount on our 2022 return. We were in that in-between window of we were allowed some contributions to Roth IRA but not the entire amount.

I understand that PJ code in 2023 1099-R indicates the earnings (box 2a) need to be included on the 2022 amended tax form. I started on the amended tax return for 2022, but I'm in a spiral of sorts. Once I input the $62.75 (box 2a on 1099-R) on amended return it says the amount I could contribute to our Roth IRAs is even less than what it was when I submitted 2022 tax return. So now do I have to remove the $40 excess contribution from each Roth IRA? Won't that just result in more earnings for 2022 which will then result in yet another reduction in our allowed Roth IRA contribution amount?

Please help. Hopefully I'm missing something obvious.

Thanks.

[dmertz · Accepted solution]

You've encountered the complication that occurs when you are in the Roth IRA contribution phase-out range and you do a return of contribution that must be accompanied by attributable earnings.

At this point all you can do is file the amended 2022 tax return and resign yourself to the fact that you have still made a small excess contribution for 2022.  Unless you are able to apply that excess as part of a 2023 Roth IRA contribution, you'll have that small excess subject to penalty again for 2023 and you'll need to resolve the excess in 2024.  Resolving the excess in 2024 means either being able to apply it as part of your 2024 Roth IRA contribution or before the end of 2024 obtaining a regular distribution equal to the amount of the excess.  (It's too late to do a return of a 2022 contribution before the due date of your 2022 tax return, including extensions.)

[novackb]

Thank you. We are under our allowed Roth IRA contributions for 2023 because I got scared after our 2022 excess contribution experience. What form do I need to fill out for 2023 taxes showing I am applying the 2022 excess to the 2023 contribution limit?

[fanfare]

Do the amendment first.

then review 2022 Form 5329 and 2023 Form 5329

[dmertz]

When you go through the Roth IRA contribution section of 2023 TurboTax, confirm that TurboTax shows the correct ~$40 of excess carried in from 2023.  TurboTax will will then ask you how much to apply as a 2023 Roth IRA contribution where you'll indicate the entire amount of the excess.  The result will be that TurboTax will include the this amount on line 35 of Form 5329 to be subtracted from the same amount on line 34, resulting in $0 on line 38.