2022 Excess Roth Contribution- removed in 2023- how to report

[Gizmobug]

In 2022 I made a $6,000 Roth IRA contribution. In Feb 2023 while preparing my taxes, I discovered that I exceeded the income limit and my allowable contribution amount for 2022 is $0. I have an excess contribution of $6,000 for 2022. As I have a rolled over traditional IRA account from an old 401(k), I did not want to deal with the pro rata rule and decided against doing a recharacterizarion (changing to a non deductible IRA contribution and then converting to a Roth). I decided to have the excess contribution returned to me. I called my brokerage and my excess contribution is being processed. My account balance actually decreased so I am at a loss so there will be no earnings to tax.

I’m at a loss how to handle this in the tax software. When I report the $6,000 contribution, turbo tax tells me I have an excess and there is a Q&A that says I can remove the excess, but there is no screen / forms to go through to actually report the removal of the excess. And TurboTax is trying to charge me 6% on the contribution.

From what I can gather, I need to go in and delete any mention to making a Roth contribution- in other words, instead of saying I made an excess Roth contribution and removed the excess Roth contribution, I make no mention of it at all. Is that correct?

In reading some other threads, it looks like some people make a bogus 1099 to report the return of the funds. Do you still need to do that even if it’s at a loss? What would that look like for a loss? I don’t have the exact numbers yet- I could probably estimate or call the brokerage, but it won’t get reported until next year. Since there is no tax impact I wonder if it needs to be reported at all. 

@dmertz 

@DianeW777 

[DanaB27]

No, you will enter the Roth contribution, and then during the contribution interview, you will enter on the penalty screen that you withdrew the excess contribution and this will remove the 6% penalty from your 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 “Roth IRA” and enter your contribution of $6,000
5. On the penalty screen enter that you removed the excess contribution ($6,000)

Yes, you will still enter Form 1099-R for the distribution. 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.

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.

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 with the above steps 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.

[Gizmobug]

The search function doesn’t seem to work very well. There were no choices that allow you to jump anywhere- just shows questions and answers. I think I have seen it before in years past but not now. In any case, I went back to the IRA section and somehow I finally got the tool to allow me to put in that I made a $6000 withdrawal. The tax penalty went away. Nice it worked!!

For the 1099R can I estimate the numbers? I see the transfer out and it’s about $5,200. The actual share count transferred out includes fractional shares so I can look up the price from that day, but depending on how it’s calculated, I could be off by some pennies or some dollars. It’s at a loss either way, but if I report $5,200 vs $5,201 will it really matter? Or should I wait for the 1099-R and file an amendment next year?

[fanfare]

You took out $6,000.  You just said you got rid of the penalty.

You should stop now while you are ahead.

the earnings don't matter because you had no gains on that money while it was in the Roth account.

[DanaB27]

Yes, the distribution for box 1 will be the amount that you received. Since you didn't have any earnings a few cents off (rounded up or down) won't make a difference.

Maybe these instructions will be more helpful since the search and jump function didn't work well:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Box 1 enter total distribution (contribution minus loss)
8. Box 2a enter $0
9. Box 7 enter J and P
10. Click "Continue"
11. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.

[rmparkiii]

Thank you.  This has been very helpful - the situation is almost identical to mine.  I do have a couple questions.  FYI, I am using TurboTax Premier on my Mac.

I got through step 8 (“Box 2a enter $0”) fine.  On Step 9 the procedure says “Box 7 enter J and P”.  On the dropdown, the choice J is “Early Distribution from Roth IRA” - that seems consistent.  The dropdown for choice P says “Return of contribution taxable in 2021”.  That seemed weird, so I looked at the dropdown list and saw choice 8 is “Return of contribution taxable in 2022”.  Should I choose “P” or “8”?

I never got the “Which year on Form 1099-R” screen from Step 11.  Is there some  other way that I can indicate that this is a 2023 Form 1099-R?

[DanaB27]

You will select P. 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.

To confirm, you never get the “Which year on Form 1099-R” screen? It should come up after a few other follow-up questions.

@rmparkiii 

[rmparkiii]

Thanks!  I started the creation of the 1099-R from scratch, followed your instructions (including selecting P), and this time I did get to choose 2023 as the year.  I must have made some misstep(s) on my earlier attempts.  Thanks again!

[bharris9]

I have the same situation, except my contribution and withdrawal were exclusively in 2023. That is to say, I made a Tax Year 2022 Roth IRA contribution of $6000 in March 2023. While doing taxes, I realized I exceeded the income limit and withdrew the contribution + earnings before the tax filing deadline in Apr 2023. The total withdrawal was $6562.78 and I opted NOT to have any taxes taken out (Fed, State or early distrib).

Should I be doing the manual 1099-R against the 562.78 distribution (earnings) in my current tax year 2022 return? Or should I be waiting to do this next year (2024) in my tax year 2023 return?

And would I be using Box 7 codes J and P? or J and 8?

[DanaB27]

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 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

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