excess contribution...or not?

[gjgogol]

Hello - I erroneously made an excess IRA Roth contribution in January of 2022. I subsequently received in March 2023 a distribution of that excess contribution BEFORE I submitted my 2022 taxes return in April 2023.  I received a 1099R for the March 2023 distribution. I am 68 years old.

1) was I supposed to report the excess contribution on my 2022 taxes since i received distribution PRIOR to submitting 2022 tax return in April 2023?

2) Since I just received (in Feb 2024) a 2023 Form 1099R for that distribution in March 2023, do I need to report it on my 2023 return?

[DanaB27]

No, you do not report an excess contribution on your 2022 tax return. You removed the excess plus earnings before the due date and therefore do not have an excess contribution for 2022.

No, you don't need enter the 2023 Form 1099-R with code P and J on your 2023 tax return. An exception would be if you had any taxes withheld then the Form 1099-R will have to be entered on the 2023 tax return to apply the taxes to 2023. The code P will tell TurboTax to ignore the income for 2023.

The 2023 Form 1099-R with code P and J belongs on your 2022 tax return. If you did not enter a Form 1099-R with code P and J when filing your 2022 tax return and have an amount in box 2a then you will have to amend your 2022 tax return.

[gjgogol]

@DanaB27I imported the 2023 Form 1099R into TT for 2023 return.  Should I delete the imported 2023 Form 1099R info or leave it alone since it had a code P in box 7?

Also, you state code "P and J".  There is only one code that is P.  Box 2a is blank. Do I still need to amend 2022? BTW, my 2022 contribution was $7K but my distribution was $5900, i.e. a loss. Do I still need to amend 2022 return?

[DanaB27]

You do not need to delete the 2023 Form 1099-R since the code P will tell TurboTax that it needs to ignore the income on the 2023 tax return.

You do not need to amend your 2022 tax return since you had a loss. Only earnings are taxable and have to be reported.

You might want to check with your financial institution since a code P only will indicate a return of an excess deferral.  For a return of an 2022 excess Roth IRA contribution, returned in 2023, the code in box 7 should be P and J.

[gjgogol]

@DanaB27Code J would not apply to me, would it?  As I stated in my original question, I am 68 years old.

[DanaB27]

For a returned excess Roth IRA contribution the code has to include code J, your age doesn't matter. But if you have earnings then the 10% early withdrawal penalty will not apply because of exception "21 Corrective distributions of the income on excess contributions distributed before the due date of the tax return (including extensions)" (Instructions Form 5329).

[gjgogol]

@DanaB27 ok thank you.  I will check with my financial institution.

I also ask a question about my 2021 excess contribution? I took a distribution of that excess contribution in March 2023. I paid the 6% penalty for 2021 and 2022.  I received a 2023 Form 1099R for my distribution. Box 2a is blank and box 7 has only one code, Q.  Do I need to include/report the distribution on my 2023 return?

[DanaB27]

Yes, enter the 2023 Form 1099-R with code Q on your 2023 tax return. It will show that you removed the 2021 excess contribution. The distribution isn't taxable since it was a Qualified Distribution.

[gjgogol]

@DanaB27Back to code J (Early distribution from a Roth IRA, no known exception (in most cases, under age 59½)...my March 2023 distribution of my January 2022 contribution is considered an "Early distribution"?

[DanaB27]

Yes, generally code J indicates an early distribution but it is also used for a Roth distribution when codes T and Q don't apply.  You cannot use Code T and Q with code P.  As I mentioned above the 10% early withdrawal penalty won't apply because a corrective distributions of the income on excess contributions distributed before the due date of the tax return qualifies for the exception. But you did not have any earnings and therefore do not need to worry about this.

Please see 1099-R instructions for additional information.

[gjgogol]

@DanaB27What happens to my return if I only identify code P and do not identify code J?

[gjgogol]

@DanaB27So in TT HELP I looked up the exceptions and at the bottom of the HELP screen it states the following:

"Your payer should have entered a code of "2", "3", "4", or "T" in box 7 of your Form 1099-R if the payer knew your distribution met one of these exceptions. If so, you don't have to file Form 5329. If one of these codes isn't shown in box 7, you'll probably need to file Form 5329."

Based on this, it appears to me that code T (T--Roth IRA distribution, exception applies) should have been identified instead of code P, correct?

At the time of distribution in March 2023, my payer should have known I met exception 21 (Corrective distributions of the income on excess contributions distributed before the due date of the tax return.), correct?

[DanaB27]

No, the code for a 2022 excess contribution returned in 2023 is P and J. And then you have to file Form 5329 and the exception 21 Corrective distributions of the income on excess contributions distributed before the due date of the tax return (including extensions) on line 2.

"Roth IRA. For a distribution from a Roth IRA, report the total distribution in box 1 and leave box 2a blank except in the case of an IRA revocation or account closure and a recharacterization, earlier. Use Code J, Q, or T as appropriate in box 7. Use Code 8 or P, if applicable, in box 7 with Code J. Do not combine Code Q or T with any other codes.

However, for the distribution of excess Roth IRA contributions, report the gross distribution in box 1 and only the earnings in box 2a. Enter Code J and Code 8 or P in box 7." (Form 1099-R instructions)