How to report a return of excess Roth IRA contribution for 2021 and 2022

[MysticHLE]

Hello, I have the following situation, and was wondering how I should go about handling/reporting everything in TurboTax.

1. Made an excess Roth IRA contribution in 2021 for $6000 - this was originally not reported correctly as excess contributions.

2. Made an excess Roth IRA contribution in 2022 for $6000 - this was originally not reported correctly as excess contributions.

3. Made an excess Roth IRA contribution in 2023 for $500

In late 2023, I withdrew all of excess contributions and earnings. I got two 1099-Rs this year for the withdrawal:

1. Gross distribution of $12495.06 ($6000 + $6000 + $495.06 in gains); taxable amount blank; distribution code J

2. Gross distribution of $548.95 ($500 + $48.95 in gains); taxable amount $48.95; distribution code 8J

I have already filed an amended return for 2021 while paying the penalty on the $6000 excess contributions. I have not yet filed an amended return for 2022 for the $6000 excess contributions for that year.

My understanding is that:

1. The total amount of gains withdrawn in 2023 ($495.06 + $48.95) should count towards my taxable income of 2023, and I would be subject to a 10% early withdrawal penalty on this amount.

2. I need to file an amended return for 2022 paying the 6% penalty on the excess contribution.

3. The $12,000 -return of excess contribution- is NOT subject to any additional taxation and penalties for 2023.

Is this correct? What are the correct/simplest order of operations here? Should I file an amended 2022 return first before proceeding with 2023 returns? How should I go about entering all this in the software for tax year 2023?

Appreciate any guidance here!

[DanaB27 · Accepted solution]

For your information, if you remove an excess contribution after the extended due date then you need to only request a regular distribution of the excess contribution amount (without earnings or losses).

No, you do pay the 10% penalty on the earnings of an excess contribution returned before the due date because of law changes: “21 Corrective distributions of the income on excess contributions distributed before the due date of the tax return (including extensions).” (Form 5329 Line 2 Instructions)

Yes, if your net contributions (include the 2021 and 2022 excess contributions) are less than 12495.06 then you will have taxable earnings and they will be subject to the 10% early withdrawal penalty if you are under 59 ½.

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 after you entered all Form 1099-R
5. Answer all the questions and make sure you enter the net contributions prior to 2023 on the "Enter Prior Year Roth IRA Contributions" screen (include the 2021 and 2022 excess contributions)
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 and 2022.
8. On the"Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings ($48.95) under "Corrective distributions made before the due date of the return".

Yes, you need to amend your 2022 tax return to pay the 6% penalty for the 2021 and 2022 excess contribution:

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 you made for 2022
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the $6,000 excess contribution from 2021.