Fix Roth IRA Excess Contribution in 2022

[sebcr]

In Mar 2023, I made a 2022 Roth IRA contribution of $6000, which I just realized was completely in excess.

I have a few questions on how to correct the issue, assuming I withdraw the excess by the 2023 filing date (Apr 15, 2024):

1. Do I need pay the 6% penalty for 2023?

2. Do I need to withdraw the earnings as well or just the excess contribution?

3. What do I need to amend on the 2022 return?

4. Do I need to report anything on the 2023 return?

5. Will there be anything to report on the 2024

Thank you!

[DanaB27 · Accepted solution]

1. Yes, you will have to pay the 6% penalty in 2022 and 2023, assuming you cannot apply the excess as a 2023 contribution.

2. No, since it is after the extended due date you will request a regular distribution without the earnings to remove the excess.

3. You should have enter the contribution in the IRA contribution section and then TurboTax will automatically calculate the 6% penalty. If you didn't enter the Roth IRA contribution then you will need to amend the 2022 tax return.

4. You will enter that you had an excess contribution for prior years and TurboTax will calculate the 6% penalty:

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 2022.

5. On your 2024 return you will enter the 2024 Form 1099-R:

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  (include the 2022 excess) on the "Enter Prior Year Roth IRA Contributions" screen
6. On the "Do you have any Excess Roth Contributions" answer "Yes"
7. On the "Enter Excess Contributions" screen enter the total excess contribution from 2022.

Entering the 2024 Form 1099-R for the excess distribution will resolve the excess contribution in 2024 and you do no longer have to pay the 6% penalty.

[sebcr]

Thanks @DanaB27, I have some follow-up questions.

> 2. No, since it is after the extended due date you will request a regular distribution without the earnings to remove the excess.

Reading the IRS Publication 590-A on Roth IRA, it says: 

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Withdrawal of excess contributions. 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.

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Does this apply only for the initial year the contribution was made for, or also for any subsequent years the contribution remains in the account? One interpretation could be that removing the excess contribution and any earnings before the due date for filing the tax return for 2023, would mean the excess contribution did not exist in 2023, hence no penalty applies for 2023.

> 1. Yes, you will have to pay the 6% penalty in 2022 and 2023, assuming you cannot apply the excess as a 2023 contribution.

Does it make any difference that the contribution was actually made during the 2023 calendar year (for the 2022 tax year), and the money never actually sat in the account during the 2022 calendar year, hence avoiding the 2022 penalty?

Thank you!

[DanaB27]

No, since you made the contribution for 2022 you had to remove the excess contribution plus earnings by the extended due date of the 2022 return (October 16th, 2023). Since you did not remove the excess plus earnings you will have to pay the 6% penalty on your 2022 return.

Yes, this treatment mentioned in Pub 590-A only applies for the initial year. When you made an excess contribution for 2022 then you had time until October 16th, 2023, to remove the excess contribution plus earnings. Since you did not remove the excess plus earnings by the due date you cannot use this treatment.

[sebcr]

What is the latest date to remove the excess contribution in 2024 to avoid the penalty for 2024? Based on what you described, the April 15 filling date has not relevance in this case, right?  

Thank you!

[DanaB27]

You need to remove the 2022 excess contribution by December 31, 2024 to avoid the 6% penalty on your 2024 return.