Excessive Roth IRA Contributions in 2022 and 2023. Earnings are only in 2022.

[ya332]

My MAGI is above the limit for 2022, but I contributed $6000 to my roth IRA in 2022. The fair market value of my roth IRA as of Dec 31, 2022 was $5,894.34. In 2023, I contributed $500 cash (no investment) more and realized my MAGI is above the limit. So, I withdrew my $500 + $1(interest) in a few months. Currently my roth IRA market value is $6696 as of writing this and haven't filed my 2022 taxes. So, my 2022 investments appreciated, and I have some earnings on my investments, roughly $696). 

I won't receive my 1099-R until 2024 but I don't want to amend my 2022 tax return in 2024. How can I empty my roth IRA to avoid the 6% excise tax now before the 04/18 due date and report my distributions?

TurboTax is asking me my total contributions and my withdrawals till april 18th, 2023 which is confusing since the $500 I contributed was in 2023 but I guess is considered as part of 2022?  If I say I withdrew $6696 (2022 contributions + earnings) + $500  (2023 cash contribution) + $1 (2023 interest from cash) from Jan 1, 2022 to April 18th, 2023, TurboTax asks me to review the number and tells me that the withdrawals cannot exceed $6000. What is recommended here? I would appreciate any insights.

[DanaB27]

You will request the withdrawal of excess contributions plus earnings with your financial institution by the due date. They should calculate any earnings for you and will distribute them with your excess contribution.

No, you don't include the contribution for 2023 when TurboTax asks about your total contributions and your withdrawals till April 18th, 2023. You will only enter the contribution amount for 2022 ($6,000) on the penalty screen as withdrawn by the due date (ignore losses and earnings here).

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 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" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

The excess contribution for 2023 plus earnings will be reported next year on your 2023 tax return.

[ya332]

Thanks so much. This is very helpful. I dont want to amend my 2022 tax return in 2024, so I am typing my 1099 R now myself in my 2022 tax return right now.

For box 1a, do I enter $5,894.34 (value of my roth IRA as of Dec 31, 2022) or do I enter $7197 which is the sum of $6696 (2022 contributions + earnings) and $500  (2023 cash contribution) and $1 (2023 interest from cash)?

For box 2a, are the earnings considered $0 if I the value of my roth IRA as of Dec 31, 2022 was $5,894.34 but I contributed $6000?

One more question, since I made a $500 contribution in 2023 and withdrew it, does it mean I will have to report this distribution in my 2023 tax return when I get my 1099 R in 2024? 

[DanaB27]

When you request the withdrawal of the 2022 excess contribution plus earnings your custodian should calculate the earnings for you. You will receive the distribution which will be entered in box 1, if you received more than the contribution for 2022 then you had earnings and these will be entered in box 2a. If you received a $6,696 distribution then you will enter $6,696 in box 1 and $696 in box 2a.

Yes, the $500 contribution for 2023 that you withdrew in 2023, will be reported in your 2023 tax return when you get your 2023 Form 1099-R in 2024.