My AGI was too high. My $7,000 IRA contribution is taxable. I need to report it on Form 5329 to withdraw it this year without being taxed. How do I do that?

[DanaB27]

To avoid the 6% excess contribution penalty you can withdraw the excess contribution plus earnings by the due date of the 2022 tax return. Please request with your institute the withdrawal of excess contribution plus earnings (no taxes withheld).

You will enter during the IRA contribution interview that you withdrew the excess contribution by the due date (only enter $7,000 don't include earnings). 

Please follow these steps (assuming it was an excess Roth contribution):

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA” and enter your contribution
4. On the penalty screen enter the $7,000 as withdrawn by the due date.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 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 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 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 2022?"
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 2023 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 "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

Please see What happens if I made an excess Roth IRA contribution for additional information.

[jsblume42]

Thank you. I have submitted a request to withdraw the $7,000. I called Fidelity and confirmed that the 1099-R they will send in 2024 will have the proper codes. I won't need to create a 1099-R for this year for the funds.

[fanfare]

The purpose of the fake 1099 is to report the earnings, if positive, which must be filed on your 2022 tax return.

if earnings are negative, there is nothing to do.

@jsblume42 

[jsblume42]

The $7,000 is already part of my earnings for 2022 because the deduction is not being allowed. I am being taxed on it for 2022.

The distribution will be for 2023. Fidelity has confirmed that the 1099-R for 2023 will have the proper codes so that the distribution won't be taxed.

[fanfare]

by earnings, is meant earnings in the IRA account attributable to the period while the money was in the account.

The custodian must calculate this.

if positive, it is returned to you and it is taxable on your 2022 tax return.

@jsblume42 

[jsblume42]

Thank you. The $7,000 I with drew a few weeks ago will count as earning for 2023, not 2022. I won't need a fake 1099-R for 2022. That $7,000 is simply not being subtracted from my income for 2022, so I am paying taxes on it for 2022. The 1099-R that Fidelity provides me for 2023 will indicate the distribution is not taxable for 2023.

[fanfare]

call fidelity back.

Ask them where the earnings on $7,000 in your tax-deferred account will appear on your 1099-R.

[fanfare]

if fidelity returns to you less then $7,000 you lost money, there were no earnings.