2023 roth ira over contribution

[badattaxes1]

Married Filing separately. for 2023 I opened a roth ira with 0 in it and funded the max(6500). gained 146.73 in the market. Realized I was ineligible and withdrew with excess contribution withdrawal form. This unfortunately didn't go thru until mid Jan of 2024. Filling out my taxes now I accounted for the ira contribution and subsequent withdraw of 6500 but it wont let me account for the additional earnings in that area

 I know I will get a 1099 r in Jan of 25 for the gains of 146.73(total of $6646.73).

Couple questions because I have seen some similar threads

Can't i just get the 1099 r and pay the tax on the earnings for 2024 next year? I don't want to have to file an amended return and saw a similar thread where some did unless they created another 1099 r which was also confusing. I am using turbo tax deluxe with live advice but wanted to put this out there for multiple responses. Thank you to all who respond. 

[DanaB27]

No, when you withdraw an excess contribution for 2023 plus earnings then the earnings have to be reported on your 2023 return (Pub 590-A).

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution of $6646.73  (contribution plus earning)
7. Box 2a enter the earnings ($146.73)
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 2024 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

[badattaxes1]

Ok, thank you. I had a live expert assist me recently but they did not bring this up at all. What is the best way for me to link this information to a live tax expert to help walk me through this when I go to make this correction and assist me with filling everything in?

[dmertz]

The gains required to accompany a returned IRA contribution are required to be included on the tax return for the year that the contribution was made.  Because the contribution was made in 2023, the gains must be reported on the 2023 tax return.  You can do this by entering into 2023 TurboTax the code JP 2024 Form 1099-R as if you have already received it, then indicating to TurboTax in the follow-up that it's a 2024 Form 1099-R.

[badattaxes1]

Under instruction # 12.)  Wouldn't my corrective distribution be 6500 because I contributed 6500 and subsequently withdrew the 6500? Or would it be 6646.73(contribution plus earnings) or as previously described the "earnings" which would only be 146.73?

Need some clarification here

[dmertz]

Only the $146.73 is taxable, so that's the amount on which you claim the exception to the penalty.  The $6,500 is nontaxable and therefore already not subject to penalty, so no exception is to be claimed for that portion.  So in the box referred to in item 12, enter $146.73.  If everything else was done right, that will eliminate all of the penalty.