How to deal with IRA Roth over-contribution withdrawal before deadline

[CarrotStick]

Hello, 

I have a question about correctly reporting two 1099-Rs on my 2022 return, and possibly amending a previous return (2021).

In 2021, I contributed $5,700 to a Roth IRA. While starting to do my taxes in January 2022 for tax year 2021, I realized I should not have contributed to the Roth due to the income limit. I immediately connected with the institution of my Roth and withdrew the excess contribution (+/- gains/losses) before the tax deadline (there were no gains, only losses: I received ~$5,200). Subsequently, also before the tax deadline for TY2021 (April 2022), I contributed the withdrawn money (+ a little bit to add up to $6,000) to a traditional IRA, as a contribution toward 2021. This money is hence non-taxable, as it has already been taxed, so this is a non-deductible contribution. Later in 2021, I rolled over the 6k non-deductible traditional IRA contribution (+ gains of 66cts) to the Roth IRA (doing a backdoor Roth).

For TY 2021, I filed using Turbotax in April 2022, and included form 8606, filling out Part I, acknowledging my 6k non-deductible contribution to the traditional IRA. I am under retirement age and filed jointly for 2021.

This year, 2023, I received two 1099-Rs: one for the excess withdrawal (year on doc: 2022, 5.7k, resulting in 5.2k due to losses) showing code JP, and one for the IRA rollover (year on doc: 2022, $6,000.66) showing code 2 (state/fed tax withheld). In my Turbotax return, I first added the 6k 1099-R and indicated that I "converted all of it to Roth IRA". Then I also added my second 1099-R for the 5.7/5.2k, though the system said I may need to adjust my 2021 return. The system now shows a total of ~11.2k for Roth IRA contributions, which seems odd to me, as I only contributed 6k, really, and it was toward 2021.

I am still under retirement age and filing jointly for 2022.

My questions are:
(1) Did I enter my 1099-Rs correctly?
(2) Why do I need to amend my 2021 return, as my 1099Rs for the excess withdrawal have the TY 2022 on them? As per my understanding and the instructions in form 5329, I understood that withdrawing an excess contribution prior to the filing deadline treats it as though it never happened. - How is this represented in tax filing?
(3) If I do need to amend, what exactly am I supposed to change?

Thanks in advance!

[DanaB27 · Accepted solution]

1. Please make sure you only enter the 2022 Form 1099-R for the conversion in the retirement section and don't enter anything in the IRA contribution section (unless you made a direct contribution for 2022). You don't need to enter the 2022 Form 1099-R with code JP on your 2022 tax return (the only exception is if you had taxes withheld). 

2. The 2022 Form 1099-R with code JP belongs on your 2021 tax return and generally, you will have to amend your 2021 tax return. Generally, any earnings withdrawn with the 2021 excess contribution are taxable on your 2021 tax return. But you didn't have any earnings because of your loss therefore you don't have a taxable event to report. Adding the 2022 Form 1099-R with code JP would only create an explanation statement for the IRS but not change your taxable income. Therefore, you don't need to amend your 2021 tax return.

[CarrotStick]

DanaB27 - Thank you so much.

I have removed the 1099-R that indicates my excess withdrawal from the "Add another 1099-R" section under "Wages and Income".
The "Wages and Income" section, subsection "IRA, 401(k), Pension Plan Withdrawals (1099-R)" shows my $6,000.66 amount for 2022, and nothing for 2021.

I have also confirmed that the "Deductions and Credits" Section, subsection "Traditional and Roth IRA Contributions" shows a $6k contribution for 2021 and a $0 contribution for 2022 (I did not contribute in 2022).

This means I should be good to go w.r.t. IRA troubles described above?

[DanaB27]

Yes, you entered the IRA information and Roth conversion correctly.

Your 2022 Form 8606 will show your basis from 2021 on lines 2, 3, and 5 ($6,000). Line 13  will show $6,000 as the nontaxable portion of distribution/conversion since you converted everything. Line 14 should be $0.

@CarrotStick