Excess Roth

Yes, for the 2020 excess you have to pay the 6% penalty for 2020 and 2021. You can avoid the penalty for 2022 by making a regular distribution (without earning and losses) since it is after the 2020 due date.

Yes, for the 2021 and 2022 excess contribution you can avoid the 6% tax on excess contributions if you withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.

The earnings will be taxable income and are subject to the 10% early withdrawal penalty if you are under 59 1/2.

You will get a 2022 Form 1099-R  in 2023 with codes P and J for the withdrawal of the 2021 excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options:  

• You can wait until you receive the 2022 Form 1099-R in 2023 and amend your 2021 return or
• You can report it now in your 2021 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 2022 Form 1099-R into the 2022 tax return since the withholdings are reported in the year that the tax was withheld. The 2022 code P will not do anything to the 2022 tax return but the withholdings will be applied to 2022.

To create a Form 1099-R in your 2021 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 2021?"
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 2022 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 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

You will get a 2022 Form 1099-R  in 2023 with codes 8 and J for the withdrawal of the 2022 excess contribution and earnings. This 1099-R will have to be included on your 2022 tax return.

Thank you. The information is very informative. I now know what to do for the 2021 and 2022 excess. For the 2020 excess, the only option is to wait until I get the 1099-R next year and file an amended tax return for 2020 tax year in 2023?

Yes, you will have to amend your 2020 tax return to pay the 6% penalty if you haven't paid it when you originally filed. You will get a 2022 Form 1099-R with code J for the regular distribution of the 2020 excess (no earnings or losses). You will enter this Form on your 2022 tax return.

Therefore, you should have two 2022 Form 1099-R  (one with code 8J and one with the code J) to enter on the 2022 tax return and one 2022 Form 1099-R with codes PJ that goes on the 2021 tax return.

I have one last question. I just received an email from my Roth account that they won’t be able to process and remove the excess fund until a few days after 4/18. Do I need to file an extension for 2021 and wait for them to finish removing the excess amount so that I won’t get the 6% tax on the 2021 excess? 

No, you can go ahead to file your return and report it as withdrawn.

"If you timely filed your 2021 tax return without withdrawing a contribution that you made in 2021, you can still have the contribution returned to you within 6 months of the due date of your 2021 tax return, excluding extensions." (IRS)

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