Oops! Excess Roth contributions

[Stubin777]

Hello, this question seems to have been asked already but several different variables are not the same so I thought I’d ask my person situation:

2022 Jan $6000 Roth IRA contributions

 2023 Feb learned I made too much to contribute to a Roth so I withdrew the excess contributions of ~$5700 (a loss).

2023 Feb created a traditional IRA

Now ( 2023 Feb) looking for a way forward before I file at the filing deadline for 2022 taxes.

My IRA company already sent out (prior to me withdrawing) the 1099. They said my withdrawal of excess funds would be on next year’s (2023’s) 1099. Here are my questions:

1) Can I still contribute for 2022 to my new traditional Ira? And if so, how much? ($6000 or what I withdrew ~$5700).

2) I’m hoping the first question is yes and I can contribute (non deductible funds) and convert those funds backdoor to a Roth, if so, how will both of those things be communicated on turbo tax? Do I state that I contributed to Roth at all for 2022 or just skip to traditional contributions (1099s won’t support this)? Or do I say that I contributed to Roth and withdrew excess and contributed to traditional? Would that be done for filing return 2022 or 2023?

3) Is there a mechanism to recognize the loss taken for the 2022 contributions on turbo tax or am I just out of luck (which is fine because it’s about the 6% lesson I needed to learn).

I haven’t moved forward with anything beyond this and would greatly appreciate any suggestions or advice! Thank you!

[DanaB27 · Accepted solution]

1) Yes, you can contribute $6,000 to the traditional IRA since you withdrew the full Roth contribution but had a loss. During the contribution interview, you will enter the traditional and Roth contributions and when you get to the penalty screen, you will enter that you withdrew the $6,000 excess Roth contribution (without considering any losses).

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and loss. 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 minus loss)
7. Box 2a enter $0
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.

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.

2) To enter the nondeductible contribution to the traditional IRA on your 2022 tax return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

The Roth conversion would be entered next year on your 2023 tax return with these steps:

1. Click on "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

3) No, you cannot recognize the loss.

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

[Stubin777]

Thank you!