Excess contributions

[mcarvv]

Help! In March of 2022, while doing my 2021 taxes, I realized I had over contributed to my Roth for 2021. At the time, I simply removed the excess contributions of $1500 from my Fidelity account.  I did not realize I had to fill out a withdraw of excess form and calculate earnings (completely my mistake). Now, it is 2023 and my 2022 1099-R from that removal is all messed up. I have been trying to get Fidelity to help me but they don’t seem to know how to recode it. Do I need to just report the entire $1500 as an untimely return now and pay the 6% fee since I never removed the earnings? How do I go about doing this? Fidelity seems clueless. After explaining my situation, the corrected 1099R they provided me still has codes PJ which I believe is incorrect because the J would indicate a timely removal, right?

This is a mess. Any and all help would be appreciated.

[MaryK4]

Can you just clarify if you just did a distribution, or did you contact Fidelity and request the return of the Excess Contribution?   Please review Excess IRA Contributions | Rules & Options.

[mcarvv]

At the time, I didn't realize I had to fill out that excess contribution form so I just took out the 1500 from the ROTH myself. I've since realized my huge mistake and gone back to them to have it corrected but since its now past the filing deadline for 2021, they cant go back and calculate earnings on that $1500. So, I figure I have to now just file it as an untimely return for 2021 and take the 6% penalty? Is this right? I haven't come across this situation on any of the forums. Right now they have corrected the 1099 R to say $1500 as my gross distribution in box 1 and in box 7 codes PJ. No other boxes are filled in.

[MaryK4]

You should go to the Fidelity link and look at the example for the formula to calculate the earnings- you can just plug in the numbers to find your earnings.  @mcarvv 

[mcarvv]

Yes, but, Fidelity is telling me it is too late to remove the earnings since this was for 2021 and the deadline has passed for timely removal.

[DanaB27]

Yes, it would be too late and you will have to pay the 6% penalty on your 2021 return since you didn't remove the earnings. Please see How do I amend my federal tax return for a prior year?

"For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made." (IRS Pub 590-A)

Code P and J would only apply if you requested a withdrawal of excess contribution for 2021 plus earnings before the extended due date in 2022. This has to be entered on your 2021 tax return.

You should have gotten 2022 Form 1099-R with code J since you took a regular distribution without earnings and this will be entered on your 2022 tax return. This will remove the excess contribution on your 2022 tax return.

@mcarvv 

[mcarvv]

Thank you. This helps a lot!