Excess contributions to Roth and IRA because of employer 401k

[Inventive1]

Hi,

TT software is indicating that I need to pull $2800 out of my retirement account due to also being covered by an employer 401k for 2022 (or pay a penalty each year for the excess amount).  During that same year I contributed $2400 to the IRA and $7000 to a ROTH account.

The forms used to report the change ask for contribution dates for money going in.  Since the excess amount exceeds the amount put into the IRA, should I withdraw funds from the IRA and the Roth, or the full amount from the IRA, or full amount from just the Roth account?

Thanks for the help.

[dmertz]

Did you mistakenly enter 401(k) contributions as IRA contributions?  Amounts shown in box 12 of your W-2 are to be entered only in box 12 of TurboTax's W-2 form nowhere else in TurboTax.

Being covered by an employer plan has nothing to do with determining whether or not you are eligible to make an IRA contribution.  The only thing that being covered by an employer plan does is potentially affect the amount of a traditional IRA contribution you are eligible to deduct.

The maximum combined traditional IRA and Roth IRA contribution for 2022 if you were age 50 or over is $7,000.  Your Roth IRA contribution might be limited to less than $7,000 depending on your modified AGI for the purpose and your filing status.

[Inventive1]

Checked and see that I did not double enter 401k contribution into the IRA contribution forms.  Message that popped up indicated that my MAGI was too high for an IRA contribution.  MAGI over 129k while being covered at work was the issue

[dmertz]

"Message that popped up indicated that my MAGI was too high for an IRA contribution.    MAGI over 129k while being covered at work was the issue"

That would be with respect to making a Roth IRA contribution.  Being covered at work has nothing to do with eligibility to make an IRA contribution.  You would still be eligible to make a traditional IRA contribution, it just wouldn't be deductible due to be covered by the workplace plan.

[Inventive1]

So sounds like I need to reduce the Roth contribution to avoid the ongoing penalty, correct?

[dmertz]

Assuming that you are filing single or head of household, if 2022 MAGI for the purpose is over $144,000, you are ineligible to have made any Roth IRA contribution for 2022.  As long as you filed your 2022 tax return or requested a filing extension by April 18, 2023, you have until October 16, 2023 to obtain a return of contribution from the Roth IRA before the extended due date of your 2022 tax return.  If you did neither of these, it's too late to obtain a return of the Roth IRA contribution before the due date of your 2022 tax return, you must pay the 6% excess contribution penalty with your 2022 tax return and in 2023 you must either obtain a regular distribution equal to the excess contribution or be eligible to apply the excess as your 2023 Roth IRA contribution to avoid another penalty for 2023.

[Inventive1]

Thank you for all the info.  I think what you're saying is that the entire Roth contribution must be returned, not just the $2800 that TT indicated in the message.  Is that correct?

[dmertz]

There are not enough details here to indicate whether you have entered everything into TurboTax correctly and what needs to be done.  Review IRS Pub 590-A regarding how much you are eligible to contribute to IRAs and what corrective distributions might be needed:  https://www.irs.gov/pub/irs-pdf/p590a.pdf