Fixing excess Roth contributions for a previous year

[mcarvv]

I took out excess Roth contributions before the tax deadline for 2021 but failed to take out the appropriate earnings (accidentally). How can I go back and correct this now? 

[DanaB27 · Accepted solution]

To confirm, you received Form 1099-R with code J (regular distribution)? If yes, then you would have to pay the 6% penalty on your 2021 return and then enter the Form 1099-R on your 2022 tax return which will remove the excess from your 2022 tax return. Please see How do I amend my federal tax return for a prior year?

Did you verify with your financial institution that you had earnings on the 2021 excess?

On your 2022 return:

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 2022 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 2021.

"For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made." (IRS Pub 590-A)

[mcarvv]

Unfortunately, I did have earnings on that 2021 contribution that I never failed to withdraw. It’s just too late for them to calculate and withdraw now.  However, the 1099R for that withdraw that fidelity corrected for me, they put the codes PJ in box 7. I believe this is an error on their part as the P signifies earnings were deducted which were not. Should I have them correct the 1099 R to just have code J? I have been back and forth with them several times about this mistake. 

[DanaB27]

Yes, I would contact them to correct Form 1099-R to only have code J.

If they don't correct the mistake then you could file a substitute Form 1099-R with code J on your 2022 tax return (but you won't be able to e-file).

In TurboTax Online:

1.  Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R” 
4. Select "Change how I enter my form" on the "Let's import your tax info" screen
5. Select "Type it myself"
6. Fill out Form 1099-R box 1 distribution amount, box 2a blank, Check the “Taxable amount not determined” box in box 2b and enter code J in box 7
7. Continue through the questions until the "Do any of these situations apply to you?" screen select "I need to file a substitute 1099-R"

In TurboTax Desktop:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc." and check "I need to prepare a substitute 1099-R"
7. Fill out Form 1099-R box 1 distribution amount, box 2a blank, Check the “Taxable amount not determined” box in box 2b and enter code J in box 7

[mcarvv]

I contacted them and they will not remove the P from my 1099 R since I took out the money in 2021. Even though I explained to him over and over that I did not take out the earnings on that withdraw. Any suggestions on what I do from here? My 1099R now states P and J 

[DanaB27]

To verify, did you take the distribution in 2021 or 2022?

I would file the substitute Form 1099-R with code J since this will show that you removed the excess contribution with a regular distribution.

In TurboTax Online:

1.  Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R” 
4. Select "Change how I enter my form" on the "Let's import your tax info" screen
5. Select "Type it myself"
6. Fill out Form 1099-R box 1 distribution amount, box 2a blank, Check the “Taxable amount not determined” box in box 2b and enter code J in box 7
7. Continue through the questions until the "Do any of these situations apply to you?" screen select "I need to file a substitute 1099-R"

In TurboTax Desktop:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc." and check "I need to prepare a substitute 1099-R"
7. Fill out Form 1099-R box 1 distribution amount, box 2a blank, Check the “Taxable amount not determined” box in box 2b and enter code J in box 7

@mcarvv 

[mcarvv]

Sorry. I took out the money in 2022 for 2021. So, I guess I took the distribution in 2022. The 1099 R is for 2022 

[DanaB27]

You will file a substitute 2022 Form 1099-R with only code J on your 2022 tax return.