How to report withdrawl from Roth IRA

[manishve]

I withdrew 500$ from my Roth IRA account in 2022 and got form 1099R with distribution code as 8J. I put the 1099-R in TurboTax and it says that it might be subjected to taxes. I think it is because it doesn't know about my Roth IRA basis?

When I provide it my Roth IRA basis, it asks for Roth Contributions made prior to 2022. I entered 0 as I converted Traditional to Roth in Jan 2022 for year 2021 which I guess isn't a contribution? I have provided my traditional IRA basis to it and informed it about conversion from traditional to roth in Jan 2022 so it should have Roth IRA basis (verified that "IRA information worksheet" reports Roth IRA basis as 12000 (6k for each 2021 and 2022)). However, I don't  understand why it is not deducting 500$ withdrawl from Roth IRA basis,

[DanaB27 · Accepted solution]

Code 8J indicates a return of excess contributions plus earnings. The earnings are taxable and listed in box 2a. If you removed the contribution plus earnings before December 29th, 2022, and are under 59 ½ then the earnings are also subject to the 10% early withdrawal penalty.

Yes, you can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. And that is why TurboTax asks you about your net contributions prior to 2022 and the conversions. But when you request the return of excess contributions plus earnings then the earnings will be taxable income. Please see Withdrawal of excess contributions for details.

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 2022?"
5. Enter Form 1099-R
6. Click "Continue" after all 1099-R are entered and answer all the questions.
7. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess on/after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

[manishve]

Thank you for the answer!

I called my IRA trustee and they said that because when I pulled out money (upon realizing that I shouldn't have contributed due to income more than allowed for Roth IRA), I entered the reason code as excess contributions. So, my understanding is that I should report 500$ for 2022 Roth contributions and also report the withdrawl (including earnings) of it using 1099-R form, right? That way TT will not consider whole amount (500$) as taxable but only earnings?

For context, I didn't have Roth IRA account prior to 2022 so my basis is zero. In Jan 2022, I contributed in traditional IRA for 2021 and converted it to Roth IRA immediately.

Timeline:

1. Contributed 500$ in Jan 2022 in my Roth IRA. My Roth IRA basis prior to 2022 was zero.
2. Removed 500$ + 1$ earnings in Feb 2022

[BrittanyS]

Correct, according to the IRS "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."

@manishve 

[manishve]

Thank you!

So, I should report both 500$ Roth contribution and removal of it with earnings using 1099-R? Just want to confirm.

[manishve]

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@DanaB27 wrote:

Code 8J indicates a return of excess contributions plus earnings. The earnings are taxable and listed in box 2a. If you removed the contribution plus earnings before December 29th, 2022, and are under 59 ½ then the earnings are also subject to the 10% early withdrawal penalty.

Yes, you can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. And that is why TurboTax asks you about your net contributions prior to 2022 and the conversions. But when you request the return of excess contributions plus earnings then the earnings will be taxable income. Please see Withdrawal of excess contributions for details.

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 2022?"
5. Enter Form 1099-R
6. Click "Continue" after all 1099-R are entered and answer all the questions.
7. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess on/after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

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For 7, I removed excess contributions before December 29, 2022 (on Feb 20, 2022) and I am in my 30s, what shall I enter?

[ThomasM125]

You don't need to report the contribution, since it was returned to you, just the distribution.

[manishve]

Thanks! In my 1099, box 2a is empty. Not sure why my broker didn't report the earnings in box 2a. I am thinking to add earnings in box 2a as taxable income, I think that is okay.

[LindaS5247]

You withdrew it in February of 2022 or 2023?

It would go under corrective distributions per DanaB27 above..."if you are under 59 1/2 and removed the excess on/after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022"

[manishve]

I withdrew it in Feb 2022, right after figuring out my mistake. There is nominal return of 1$.

[fanfare]

the one dollar is positive earnings and goes on 1040 Line 4b.

[manishve]

Thanks! I can see that it is showing up there, seems I did right thing