excess Roth IRA contributions for multiple years.

[michaeljordan198]

the situation:

1) I am in my 30s and made excess Roth IRA contribution for tax year 2020, 2021, and 2022.
2) realized the error on March 2023 (have not filed 2022 tax return yet), and request the return of excess contribution without earnings/loss for 2020, 2021 and the return of excess contribution with earning/loss for 2022.
questions regarding the amending 2020 and 2021 tax:
1) to amend 2020 tax, the only thing needs to do is to fill out the 5329 form in Part IV to pay 6% Penalty on the 2020 excess contribution (without earnings/loss), correct?
2) to amend 2021 tax, the only thing need to do is to fill out the 5329 form in Part IV to pay 6% penalty on both the 2020 and 2021 excess contribution (without earnings/loss), correct?
questions regarding the 2022 tax (have not filed yet)
1) fill out 5329 form Part IV to pay 6% penalty on the 2020 and 2021 excess contribution (without earnings or loss).
2) after request the return of excess Roth IRA contribution for 2020, 2021 and 2022 to my IRA brokage,
I will get only one 2023 Form 1099-R in early 2024, correct? if so,
3) should I use the 2023 form 1099-R to report only the earnings of 2022 excess contribution to 2022 tax return, not 2023 tax return?
4) what should be reported in 2023 tax return? (there is no federal nor state tax withhold from my IRA brokage for the return of excess contribution for tax year 2020, 2021 and 2022).
5) if my understanding is correct for 2022 tax return, three things need to be done as follows.
A) pay the 6% penalty on 2020 and 2021 excess contribution
B) Using 2023 Form 1099-R to report only the earnings of 2022 excess contribution as taxable income into 2022 tax return.
C) no need to report 2023 Form 1099-R on 2023 tax return, in other words, nothing needs to done to 2023 tax return and it is a fresh start.
Thanks a lot,

[DanaB27]

2020 and 2021 tax questions:

1) Yes, you will have to fill out 2020 Form 5329 part IV to calculate the 6% penalty on the 2020 excess contribution (without earnings/loss).

2)Yes, you will have to fill out 2021 Form 5329 part IV to calculate the 6% penalty on the 2020 + 2021 excess contribution (without earnings/loss).

2022 tax return.

1) Yes, you will have to fill out 2022 Form 5329 part IV to calculate the 6% penalty on the 2020 + 2021 excess contribution (without earnings/loss). You can use these steps to enter it into TurboTax:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue through the questions until you get to the "Do you have any Excess Roth Contributions" screen and answer "Yes"
5. On the "Enter Excess Contributions" screen enter 2020 + 2021 excess contribution.

2) Yes, you will request a withdrawal of excess contributions plus earnings for the 2022 excess contribution. You will get a 2023 Form 1099-R with code PJ and this will have to be entered on your 2022 tax return. For the excess from 2020 and 2021, you will request a regular distribution (without earnings and losses) and will receive 2023 Form 1099-R with code J and this will be entered on your 2023 tax return.

3) Yes, You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions for 2022 and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2022?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

4) On your 2023 return you will enter Form 1099-R with code J:

1. Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter all your 1099-Rs
4. Click "Continue" on the "Review your 1099-R info" screen
5. Answer all the questions and make sure you enter the net contributions prior to 2023 (direct contributions minus distributions, include the 2020 and 2021 excess contribution in this amount) on the "Enter Prior Year Roth IRA Contributions" screen
6. Answer the remaining question.

5) A) and B) Yes.

5) C) No, you will have to have to report the regular distribution of the 2020 and 2021 excess on your 2023 tax return. But since you withdraw only contributions they won't be taxable. Please make sure that you enter your net contributions in the follow-up questions.

Please see What happens if I made an excess Roth IRA contribution for additional information.

[Edited 3/16/2023 | 5:58 am PST]

@michaeljordan198 

[michaeljordan198]

Thank you DanaB27 for the detailed reply.

Please allow me to ask 3 more follow up questions:

1) My Roth IRA account was established in 2019 and has not exceeded the IRS 5 years withdraw rule, will this situation affect the result of our original discussion in any way?

2) for tax year 2020, my Modified adjusted gross income falls between 124K and 139K which shrink my contribution limit for 2020, but I was not aware of the rule and did contribute the full 6K dollars into my Roth IRA. Let's assume my MAGI income for 2020 is 130K, the excess contribution I made will be calculated a follows:

130K - 124K = 6K

(6K/15K)  =  0.4

0.4 * 6K = 2.4K, this 2.4K dollars is the excess amount I should remove from Roth IRA account, am I correct here?

3) what is the Turbotax instruction to amend 2020 and 2021 tax (I have been using the Turbotax online version for many years).

Thank you so much.

[DanaB27]

1) No, this will not change the discussed situation. You still can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. 

2) Yes, your excess contribution for 2020 in this example is $2,400. Please see Worksheet 2-2. Determining Your Reduced Roth IRA Contribution Limit page 42 for additional information.

3) Please see How do I amend my federal tax return for a prior year?

@michaeljordan198 

[michaeljordan198]

Thank you for the quick reply.

I am using Turbotax online version and when following the instructions below to prepare my 2022 tax return, I can follow up to the 1, 2, 3 bullet point, but the 4th bullet point, turbotax prompt ask  "Did you make a Roth IRA contribution for 2022?" instead of "Do you have excess Roth IRA contribution". Please help here, thanks.

Yes, you will have to fill out 2022 Form 5329 part IV to calculate the 6% penalty on the 2020 + 2021 excess contribution (without earnings/loss). You can use these steps to enter it into TurboTax:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter 2020 + 2021 excess contribution.

[DanaB27]

You will continue through the interview and answer questions until you get to the "Do you have any Excess Roth Contributions" screen where you answer "Yes".

If you didn't make Roth contributions for 2022 you will answer "No" to "Did you make a Roth IRA contribution for 2022?"

@michaeljordan198 

[DiverJudge]

I am in the same tax situation as MichaelJordan [never thought I would say that truthfully] but my wife and I also made excess Roth IRA contributions in 2020, 2021, and 2022.

Prior to finding this post, I had been doing research on the web on how to handle this situation. I found some websites that said I needed to include earnings/loss for all three years and others that said earnings/loss only came into play for 2022. I went to the IRS site to see if I could find something to back up either solution and was unable to find anything.  Am I missing something?

Thanks.

[DanaB27 · Accepted solution]

If you withdraw the excess contribution and earnings before the extended due date then you can avoid the 6% penalty.  Please see the Withdrawal of excess contributions for details. Therefore, if you remove the excess contribution for 2022 plus earnings before October 16, 2023, then you don't have to pay the 6% penalty on your 2022 tax return for the 2022 excess contribution.

If you miss the deadline then you will have to pay the 6% penalty and remove the excess by requesting a regular distribution (without earnings or losses).

You will have to pay the 6% penalty for the 2020 excess on your 2020 return. Enter your contribution and TurboTax will calculate the penalty on Form 5329.

You will have to pay the 6% penalty for the 2020 and 2021 excess on your 2021 return. You will enter the contribution for 2021 and enter the 2020 excess when TurboTax asks about the prior year's excess. TurboTax will calculate the penalty on Form 5329.

You will have to pay the 6% penalty for the 2020 and 2021 excess on your 2022 return. You will enter the contribution for 2022 and enter the 2020 and 2021 excess when TurboTax asks about the prior year's excess. On the penalty screen, you will enter that you removed the 2022 excess contribution. TurboTax will calculate the penalty for the 2020 and 2021 excess on Form 5329.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 and 2021.

Please request a regular distribution for the 2020 and 2021 excess (no earnings or losses) with your financial institution. You will receive a 2023 Form 1099-R with code J (if you are under 59 1/2) and this will be entered next year on your 2023 return and eliminate the excess.

Please request the withdrawal of the excess contribution for 2022 plus the earnings with your financial institution. This will have to be reported on your 2022 return. Only the earnings will be taxable.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2022?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022"

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

[DiverJudge]

Thanks for the prompt response.

I have one follow-up question. I am 63 and planning on recharacterizing the excess Roth contributions for 2020, 2021, and 2022 as contributions to my traditional IRA. I did not make any contributions to the traditional IRA in any of those years. The move will increase my traditional IRA basis and since I am not taking distributions I do not think that I would receive a 1099-R for the move. Is this correct?

[DanaB27]

Please be aware, you can only recharacterize your contribution for 2022. You have to complete the recharacterization by the extended due date of the 2022 tax return (October 16th, 2023). You missed the deadline for the 2020 and 2021 contributions.

"If the transfer is made by the due date (including extensions) for your tax return for the tax year for which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA." (Pub 590a)

No, you will receive a 2023 Form 1099-R with code R for the recharacterization of your contribution for 2022 and this belongs on your 2022 tax return. But you will not need to enter it because it won't make changes to your return. You will enter the recharacterization on your 2022 tax return with these steps:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

@DiverJudge 

[DiverJudge]

Hi Dana,

Thanks again for the prompt response.

So for the 2020 and 2021 contributions, my only choice is to take a withdrawal of the contributions?

Is there any impact on my 2022 or 2023 tax returns on withdrawing the 2020 and 2021 contributions?

Thanks,

Patrick

[DanaB27]

Yes, you will have to withdraw the 2020 and 2021 excess contributions as a regular distribution (without earnings or losses).

No, it won't impact your 2022 tax return. You will enter the 2023 Form 1099-R with code J on your 2023 tax return but it won't be taxable since you withdrawing a contribution. Be sure to answer the follow-up questions and include the 2020 and 2021 excess in the net contributions:

1. Click on "Search" on the top and type “1099-R” 
2. Click on “Jump to 1099-R” and enter all your 1099-Rs
3. Click "Continue" on the "Review your 1099-R info" screen
4. Answer all the questions and make sure you enter the net contributions prior to 2023 on the "Enter Prior Year Roth IRA Contributions" screen
5. Answer the remaining question.

@DiverJudge 

[michaeljordan198]

Hi, DanaB27,

Thank you for guiding us through here.

One more question:

for the 2022 excess Roth IRA contribution, my retirement agent comes back to me with the earnings and loss info, and I actually lost money, let's say I lost 500 dollars for the excess contribution 6000 dollars (My retirement agents already distributed to me 6000-500 = 5500 dollars for 2022 return of excess). For this situation, will I enter the 1099-R info in turbotax as follows?

1) Box 1: 5500

2) Box 2a: 0

3) Box 3: how to fill here since I lost 500 dollars?

4) Box 4: 0 since there is no federal income tax withhold,

5) Box 5 and Box 6: leave blank?

6) Box 7: code J and P

7) Box 8-13: leave blank?

😎 Box 15: there is no state tax withhold for me, how should I enter State number?

9) Box 16: State distribution, how should I fill this box?

Thanks

[HopeS]

You should input your Form 1099R exactly as reported to you. The Internal Revenue Service does not permit you to deduct losses from your Roth IRA on a year-to-year basis, so the only way to deduct your losses is to close your Roth IRA accounts.

If there is no State withholding or other State information on your Form 1099R, then leave it blank. Run your Smart Review to see if any filing errors, then continue with your return preparation.

See below for information on reporting a loss on your tax return.

Loss on Roth IRA Tax Deduction

@michaeljordan198 

[michaeljordan198]

Hi, HopeS,

If you follow the thread, then you can see I do not have the 1099-R form yet which will come in 2024. that's the reason I asked how to fill out the form.

Thanks