Amending 2022 return due to excess 2023 Roth contribution removed in 2023?

[clb5]

Hello,

I made an excess contribution to my Roth IRA in 2023, which I removed in Dec. 2023 (with earnings of $30.07) prior to filing my 2023 return. I received a 2023 1099-R with distribution codes PJ for the earnings (line 7). When I entered the 1099-R info for my 2023 filing, TurboTax told me I needed to amend my 2022 return. 

When I tried to amend my 2022 return, I went to the 1099-R section, entered the 2023 1099-R information and selected that it was a 2023 form. After following all of the prompts, a screen that said "Explain the Return Contribution: You told us you received a return of an IRA contribution before April 18, 2023." This is confusing because I did not receive a return of an IRA contribution before April 18, 2023.

Key facts:

• I'm under 59 1/2 and eligible to contribute the full amount to a Roth IRA
• I made an excess contribution in 2023 and removed the contribution and earnings in Dec. 2023
• I received a 2023 1099-R with codes P and J
• I did not pay a penalty on my 2023 return
• Turbo Tax 2023 told me to amend my 2022 return because of code P.

Questions:

• Do I need to amend my 2022 tax return?
• If I need to amend my 2022 tax return, what process do I follow? Do I need a different 1099-R form than the 2023 one that I have?

Thank you!

[DianeW777 · Accepted solution]

No, you do not need to amend your 2022 tax return because you did not have an excess contribution in 2022, that was removed in 2023.  

On your 2023 tax return, the Form 1099-R should have or you should enter the total distribution (contribution plus earning) in box 1 and the earnings in box 2a. 

• Enter Code J in box 7
• Enter Code 8 in box 7

This entry will produce the Form 5329 for the $3 penalty on the $30 of earned income that is taxable from your Roth distribution.

Since you handled the distribution the same year as the contribution, the code P is in error on your 1099-R:

• P – Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2022 (you did not have this in 2022, just 2023 based on your comments).

[clb5]

Thank you! That's kind of what I wondered. 

[clb5]

Hi again,

I received my corrected 1099-R with the correct codes on line 7 (codes 8 and J), and now I'm struggling with my state return (New Jersey). 

Because code J appears in line 7, New Jersey appears to be taxing the whole distribution ($630 total, $600 excess contribution, $30 earnings). TurboTax calculates a $41 tax bill for the state of New Jersey and a $3 tax bill for the federal return. The Federal return seems correct, but the state return seems too high since I believe only the $30 in earnings should be taxed. It doesn't make sense to me that I would owe more than what I earned since this is a corrective distribution. 

Under the state return tab in TurboTax, I can get my New Jersey return to show $3 owed if I select "Yes, this was the first year of withdrawal from this IRA" on the "IRA Information for you" page and enter $600 on the "Total of IRA Contributions Previously Taxed" line, which goes to Part A line 4a on the New Jersey amended return. That also keeps my federal tax amount correct ($3). But, when I enter the fair market value of all my IRA on the same page, then my tax amount goes back to $41 for New Jersey.  Additionally, if I enter $600 in the "IRA contributions previously taxed" field, when I run the review check at the end of the return, it tells me that I should only have information in either line 4a or 4b (Part A), but the value on 4b is $0. 

Here are my questions:

• Since I'm under 59.5 years of age, is the full $630 excess contribution plus earnings that I removed in 2023 taxed in New Jersey even though only the earnings are taxed by the federal government?
• If New Jersey should only be taxing the $30 in earnings, how do I get TurboTax to reflect this correctly?
• Is it possible that my 1099-R is still incorrect? Below is what appears on the form:
  • line 1: 630.07
  • line 2: 30.07
  • line 7: 8J
  • line 11: 2023
  • line 15: NJ and the payer's state number
  • All other lines are blank

Thank you for any help you can provide. I greatly appreciate it.

[DanaB27]

You will need to report the earnings of $30 on line 20a of Form NJ-1040. To do this in TurboTax you will need to use the IRA Worksheet. You will need to enter the excess contribution amount in the contribution amount previously taxed during the NJ state return:

1. On the “You've Finished Your New Jersey Return” click “Update” next to “Adjustments”
2. Continue until you get “IRA Information” screen.
3. Select “Yes, this was the first year of withdrawal from this IRA” enter the excess contribution for 2023 next to “Total of IRA contribution previously taxed”

The IRA Worksheet isn't filed with your New Jersey Income Tax return but you will keep it for your records.