How to file Form 5329 for excess Roth IRA contributions in 2021, 2022 and 2023?

[blake4scherer]

I've read several other posts that describe a similar situation, but I thought it was best to start a fresh thread because of reading conflicting advice. While preparing my 2023 tax return, TT flagged that our income (married filing jointly) was too high to contribute to Roth IRAs. After looking into this further, I’ve realized that our income has been too high since 2021 (not sure why TT missed this in 2021 and 2022...) and now I'm trying to resolve it. We are both under age 59 ½ and until now, I’ve never received a Roth IRA distribution of any kind.

My wife and I each contributed to our Roth IRA's for $800 ea. in 2021, $800 ea. in 2022 and $600 ea. in 2023. No 5329 forms have been filed in the past. I've not yet filed my 2023 taxes and I'm trying to understand Form 5329 and related forms needed for 2021, 2022 and 2023.

I've had Edward Jones (EJ) remove the excess contributions for 2021, 2022 and 2023. The removal for 2023 contributions included earnings of $147 and $145 for myself and my wife. EJ indicates that no earnings calculation is applicable for 2021 and 2022. EJ indicates that I will not receive the 1099-R until January 2025 (that seems problematic, since TT asks for this).

Some questions:

1. I’ve been using TT online for several years, so can I electronically file 2021 and 2022 1040X amendments with their respective Form 5329 using TT online? Any tips on how to tell TT about the changes, since I don’t have a 1099-R yet?
2. For 2021 and 2022, besides Forms 5329 and 1040X, are any other forms required? I wondered if 8606 was needed, but since there are no earnings to report, I’m thinking not.
3. Looks to me like Form 5329 will be a penalty of $800 ea x 6% in 2021 and $1,600 ea x 6% in 2022, with 2022 being higher because it includes 2021.
4. For the 2023 Form 5329, I’m thinking Line 20, “2023 distributions from your Roth IRAs”, is $2,200 for each Roth IRA (total of all excess contributions returned ahead of filing 2023 taxes). End result of Part IV calcs is no 6% penalty, because all excess contributions have been removed, however, I will have a 10% penalty on earnings for 2023 (Part I of 5329). Does that all sound correct?
5. Do I need to complete the 5329’s for 2021 and 2022 (along with the 1040X for each) before I’m able to complete the 5329 for 2023? (I know that eventually Line 24 of 5329 for 2022 will be $1,600). If so, I may need to request an extension for 2023.

[DanaB27 · Accepted solution]

1. Yes, you can file the amended returns to include Form 5329. 

On your 2021 return you will enter the Roth IRA contribution for 2021 and TurboTax will automatically calculate the penalty and fill out Form 5329.

On your 2022 return you will enter the Roth IRA contribution for 2022 and enter that you had an excess contribution from 2021.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the contribution for 2022
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2021 (if it wasn't carried over).

On your 2023 return you will enter the Roth IRA contribution for 2023, enter the excess contribution from 2021+ 2022 and then enter that your withdrew the excess contribution for 2023. TurboTax will only calculate the penalty for the 2021 and 2022 excess contributions.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth IRA contribution for 2023
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2021 + 2022.
7.  Continue until the penalty screen and enter the 2023 excess contribution amount withdrawn.
    

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of the 2023 excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
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 2024 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 "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

2. No, Form 8606 doesn't apply for 2021 and 2022 returns. TurboTax will create all Forms necessary. The penalty calculated on Form 5329 will show on Schedule 2 line 8.

3. Yes, this is correct. You will also have to pay the 6% penalty on your 2023 return for the 2021 and 2022 excess contribution since it wasn't removed until 2024. You will enter the 2024 Form 1099-R with code J for the withdrawal of the 2021 and 2022 excess contribution (taken as a regular distribution) next year on your 2024 tax return and then it will eliminate the penalty for 2024.

4. No, the distribution happened in 2024 not 2023 therefore you will still have to pay the penalty for the 2021 and 2022 excess. The 2023 excess won't be entered since you withdrew it by the due date. For your information, if you are in the phase out range then the earnings from the withdrawal of the excess contribution will increase your Modified Adjusted Gross Income (MAGI) and can create a new excess. Therefore, it is best to remove a little extra to avoid this.

No, you won't have a 10% early withdrawal penalty on the earnings because of law changes. Please make sure you enter the earnings on the "Did you use your IRA to pay for any of these expenses?" screen under "Corrective distributions made before the due date of the return".

5. No, you can go ahead and file the 2023 return.

[blake4scherer]

Wow, I really appreciate this very thorough answer. Thank you so much for addressing all the questions, plus the detailed TT instructions. I think I understand the responses, but I'll need to dig into TT next to make sure I'm following along. Thank you!

[blake4scherer]

@DanaB27 ,

I'm stuck when it comes to the amendment process for 2021 and 2022. The instructions say to search for "IRA contributions" and then select "Jump to". That works for 2023, but there is no "Jump to" option when amending 2021 or 2022. 

I did go through all your instructions for my 2023 return and I believe that I'm ready to file for 2023. I would not have figured out the steps without your advice, so thank you so much!

[blake4scherer]

I manually found the Roth IRA entry under "deductions and credits", so I think I'm all good. Thank you so much @DanaB27 !

[kaitech3]

I have similar situation for excess contribution to Roth IRA for 2020,2021 and 2022 , 2023. It is for my daughter. My wife and I filed as married couple with my daughter as an dependent. Since she has no income, that caused the excess contribution.  I am trying to use turbo tax desktop version to amend 2020. There is no place to search and enter our Roth contribution. Under deduction category, the Roth IRA section, only display my name and my wife name. There is no my daughter's selection. Can you show me how to find the right place to enter? 

Thanks.

SC