Excess Roth IRA Contribution

Forum|Forum|4 years ago
April 6, 2022
1 reply
7 views

I made a Roth IRA contribution in 2022 for tax year 2021 before realizing my MAGI was over the limit.

Upon realizing this mistake, I withdrew the contribution and earnings before filing my taxes. My understanding is as follows:

1. Because I withdrew the contribution and earnings before filing my taxes, I avoid the 6% excise tax on excess contributions.

2. I will need to pay taxes on the earnings in 2023 for tax year 2022. These earnings are subject to the 10% early withdrawal penalty because I'm under the age of 59 1/2 and there is no way around avoiding this penalty.

Is this correct?

Not A Product Question

MinhT1

Level 15

As the excess contribution was made for tax year 2021, the earnings are taxable in 2021. And are subject to the 10% early withdrawal penalty if you are under %9 1/2.

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pandasgorawrAuthor

Level 2

Appreciate the quick reply!

Just want to make sure I understand fully. Even though the contribution was made in 2022, the earnings were incurred in 2022, and I withdrew both contribution and earnings in 2022, the earnings are still taxable in 2021?

Does this mean I have to either manually calculate the tax in my filing due soon or amend my filing when my broker releases tax documents next year?

MinhT1

Level 15

Your broker should give you now the amount withdrawn so you know the earnings. You should add in your 2021 tax return a form 1099-R reporting the total amount withdrawn in box 1 and the earnings in box 2a. In box 7 enter code 8 and J,

Next year, you will receive a 1099-R with code P and J in box 7. You can ignore it as it has already been reported and taxed in 2021.

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