2023 Excess Roth IRA Contribution

[RW1024]

I am using the 2023 desktop Deluxe version of Turbotax. Have read numerous threads related to reporting withdrawal of 2023 excess Roth IRA contributions. Guidance advises creating a 1099-R, entering the gross distribution in Box 1, entering the taxable amount (Net Income Attributable) in Box 2a, and entering code "P" in box 7 (code "J" is not applicable). When prompted about the year of the 1099-R, I select 2024.

I have done that, as well as, using other codes in Box 7.  The gross distribution should appear in Line 4a of Form 1040 and the taxable amount in Line 4b. They do not. The taxable amount appears in Line 1h of Form 1040 and the gross amount is not shown.

What am I doing wrong?

[AbrahamT]

1-Delete this 1099-r entry from scratch

2- Then, on the right hand side in the search bar, type in 1099-r

3- Then, click on the "Jump to 1099-r" highlighted in blue. 

4- When you get to this screen, enter in all the information exactly like this

then when you get to this screen here, indicate that this is for 2024

Following this, You will get to a screen which will ask if you if you took disaster distributions in prior years, you will say no

 to this screen, you will indicate that it was corrective distributions made before the due date of the return.

Then you will get

In the following screen, it will ask you for a description of the return of the contribution, just say excess contribution.

 

And will seamlessly show up on your 1040 pg. 1 line 4A and 4B like this

[Edited 02/20/2024  7:31 pm PST]

[RW1024]

Thank you! My mistake was that I did not check the IRA/SEP/Simple box on the 1099-R

[butimnotachef]

For the excessive contribution removal before tax filing, under what case should we be filing a form 4852? turbotax mentions if you haven't gotten 1099-R that you may want to use this so I'm confused between doing this and just filing a 1099-R? 

[butimnotachef]

A little confused. So did you file a 1099-R as well as a 5329? @manisman1995 

[Opus 17]

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@butimnotachef wrote:

For the excessive contribution removal before tax filing, under what case should we be filing a form 4852? turbotax mentions if you haven't gotten 1099-R that you may want to use this so I'm confused between doing this and just filing a 1099-R? 

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4852 is a substitute form W-2.  You would never file that in connection with a removal of excess IRA contribution.

[butimnotachef]

Form 4852 serves as a substitute for Form W-2, Form W-2c, and Form 1099-R. Think it could be applicable in this case?

[Opus 17]

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@butimnotachef wrote:

A little confused. So did you file a 1099-R as well as a 5329? 

---

You are responding to a long complex discussion without us knowing if the topic fits your specific facts.

If you made an excess Roth IRA contribution in 2023 and remove it between January 1 and April 15, 2024 (the filing deadline), you must also remove the earnings attributable to the excess contribution.  Even though the earnings are paid to you in 2024, they are taxable on your 2023 return.  To get the earnings reported in Turbotax, you must create a "substitute 1099-R form" for the earnings.

The SECURE 2.0 Act made the timely return of earnings due to excess contribution exempt from the additional 10% penalty, so you would not normally have a form 5329 on your tax return unless you owe penalties for other reasons. 

[tax_payer2]

Thank you all for the detailed instructions. I ran into another problem that had not been described in this thread.

After I added the substitute 1099-R to report the withdrawn excess contribution + earnings, my MAGI increased by the earnings as expected. However, with the higher MAGI due to the earning, my maximum allowable ROTH contribution further decreased. Therefore, I still ended up with a residual "excess contribution" even after removing the excess contribution based on my original MAGI (before the earnings).

For example, say based on my original MAGI, I over contributed to ROTH by 1,000. So, I withdrew 1,000 excess contribution plus 100 earning by April 15. As I reported the 100 earning as income, my MAGI increased by 100, and thus the new "excess contribution" was now 1,050 based on my new MAGI. However, I had only withdrawn 1,000 earlier. Therefore, I still had 50 in excess contribution which was then subject to the 6% penalty.

Something doesn't feel right.  I'm using Turbotax Desktop Deluxe. Please advise.

[DanaB27]

Yes, the earnings will increase your MAGI and therefore can change how much is excess contribution. Usually it is best to remove a little extra when you are in the phase out range to avoid that issue.

You still have time to remove the new excess contribution for 2023, by requesting another withdrawal of excess contribution plus earnings by the due date. Just keep in mind any new earnings will raise your MAGI again and you might want to withdraw a little extra to avoid any further issues.

@tax_payer2 

[VinnieT49]

I’d like to back up and ask further about actual entries that need to be made into the tax program. My case might be a little unusual where both mine and my wife’s entire Roth IRA contributions in 2023 were not allowable. We can withdraw the entire contribution and any earnings but I’m still unsure how to enter this.  It was earlier said that reversing the contribution was like it never happened. Since ours involve entire contribution amounts, do we report any Roth IRA contributions for 2023 or just skip over the IRA section completely in the program like they never happened?  That seems odd since the contribution will be reported to IRS by the account custodian.  If that’s the case, are the faux 1099-R’s that we create in the income section for the contribution reversals the only thing that needs to be entered for this to be correctly entered?  Thanks in advance for guidance on this.

[DanaB27]

Yes, you can skip entering the Roth IRA contributions or if you entered them already you can enter that that you withdrew the excess contribution on the penalty screen:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until the penalty screen and enter the excess contribution amount withdrawn.

Yes, the faux 1099-R’s that you create in the income section for the contribution reversals is the only thing that needs to be entered.

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options: 

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
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 2024 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 "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

@VinnieT49 

[VinnieT49]

I have a couple of other questions/clarifications after going through the balance of the tax prep using the instructions provided in this thread. Seemed to work OK but had a little glitch with the state return (CA) where some entries were not made automatically. Think I got it figured out, fingered crossed.

Question/Clarification 1: When creating and entering the self-created 1099-R for the excess contribution return, the program asks whether it is a CORRECTED or SUBSTITUTE document. I indicated "neither" but started wondering if that was correct since the description of a "substitute 1099-R form" was used to describe the self-created 1099-R in the instructions within this subject thread.  Should the self-created 1099-R entered this year be indicated as a "substitute" when entered into the tax program since the account custodian will not release the true 1099-R til 2025 for the returned excess contribution?

Question/Clarification 2: Prior to asking my initial question last week, I stopped preparing my return after filling out the IRA section and discovering the non-allowable contribution. At that time, I apparently went back to the beginning of the IRA section and deselected making a Roth IRA contribution which caused the tax software to ask if I wanted to delete all entries in the section, which I did until I could find out more here. In restarting my return, I did not enter anything back into the IRA contribution section because the contribution was being removed from the Roth IRA account with any earnings "like it didn't happen". Was it OK to remove the initial Roth IRA contribution report from the tax return or should it have been entered again upon restarting the return? It was implied in the instructions above that it didn't matter but I wanted to make sure that no extraneous information was left behind in the return that would cause a problem even though I indicated that all entries in the section should be deleted.

Again, great thanks for your reply for this invaluable information.

[DaveF1006]

Yes, this is a substitute 1099R and not a form issued by the custodian. Yes, it doesn't matter if you reenter the Roth contribution or not since it is a non-deductible contribution and has no impact in your return.

[VinnieT49]

I will go back into the return income section and add the "substitute" designation to the 1099-R entry. Thanks DaveF1006!