Amending a Return to Account for Excess Roth IRA Withdrawal

[AmendedQuestioner]

Hello Intuit Community and Experts,

I contributed to my RothIRA in:

• June of 2022 (for 2022 contributions)
• January of 2023 (for prior year, 2022 contributions)
• July of 2023 (for 2023 contributions)

I have since realized I was not eligible to contribute in 2022 or 2023. I have now completed a withdrawal of the 3 contributions AND any earnings they made as of July 2023. Prior to this realization and withdrawal, I already filed my 2022 taxes (done in February 2022).

My questions are:

1. Can I do anything between now and October 16th (IRS extension) to amend my 2022 tax return and address the 2022 contribution and withdrawal with earnings?
2. What should I plan to do when I'm filing 2023 taxes to address the two contributions made in 2023?

I appreciate any help the team can provide!

[MelanieC1]

Hi @AmendedQuestioner 

Regarding the 2022 tax return.  Since you have already filed, please amend by October 15.  You can still avoid paying the 6% penalty by filing the amended tax return.  You still may need to pay taxes and possibly the 10% early withdrawal penalty on the earnings (if you are under the age of 59½) but you avoid the 6% penalty on the excess contribution amount.   

For 2023 , since you withdrew the excess contribution before the tax deadline, you will not have to pay the IRS 6% excise penalty on the contribution, but you will still have to pay income tax on the earnings generated by the excess contribution.  Again, if you are under the age of 59½, you will also have to pay the 10% early withdrawal penalty on just the earnings portion of the excess contribution.

Thank you!

[CatherineR]

Hello AmendedQuestioner,

Great question about the excess ROTH IRA contribution which occurs frequently.  Here is some background regarding excess contributions options:

Retirement can be a complex area of your tax return. There are several options available for correcting excess contributions. However, not every option is applicable to each situation. Therefore, we recommend you consult with your financial advisor before taking any of the steps below to determine which option is the most appropriate for your specific situation.

The options available include:

1. Pay the penalty for an excess contribution. You'll need to pay a 6% penalty each year that the excess remains in your Roth plan. If a Roth IRA contribution is allowed next year (or any future year), excess contributions can be applied up to the contribution limit for that year and no longer subject to the penalty.

2. Withdraw the excess (including any money you earned on it) before the filing deadline for your tax return. If you do this, you'll need to correct the amount you entered in TurboTax as your contribution.

3. Recharacterize your Roth IRA contribution to be a traditional IRA contribution. That means that you instruct the account trustee to move the money to a traditional IRA and treat it as if that's where you made the original contribution.

To answer your specific questions:

#1 Yes amend your 2022 return before October 16th, 2023 to indicate the excess 2022 ROTH IRA was removed and report the earnings in the amended 2022 return.  The earnings would be the excess of cash returned over the excess contribution amount.

#2 For 2023 you will only need to report the earnings for the 2023 contribution returned to you.  Your broker may issue a 1099R for the distribution for the entire amount but only earnings portion will be taxable.   Special codes will be used and entered into Turbo Tax to determine the taxable amounts.  A  “J” with code “P” or “8” for a Roth IRA excess contribution, and does not mark the IRA/SEP/SIMPLE box.

I hope this helps with clearing up this issue.  

[AmendedQuestioner]

Hi @MelanieC1 and @CatherineR, thank you both so much for the reply! When amending my 2022 Tax Return to report earnings made on my contributions (withdrawals), how and where do I report that on the amended tax return? Is there a separate form I need to complete?

Thank you again for your time and input!

[MelanieC1]

@AmendedQuestioner 

Great question!

How to treat withdrawn interest or other income

From IRS Pub 590a: You must include in your gross income the interest or other income that was earned on the excess contribution. Report it on your return for the year in which the excess contribution was made. Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions.

Form 1099-R

You will receive Form 1099-R indicating the amount of the withdrawal. If the excess contribution was made in a previous tax year, the form will indicate the year in which the earnings are taxable.

You can report it now in your 2022 return and ignore the 1099-R when it comes (unless there are federal or state withholdings). 

To create a 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 2022 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 under "Another reason" if you are over 59 1/2 (if you 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 also feel free to call in when you are preparing the amended return.  Our experts are able to view your screen and offer Live Help.

Thank you!

[AmendedQuestioner]

@MelanieC1 Thank you! Hugely helpful. Last question, when amending my 2022 tax return which of my contributions would I include on the manually created 1099-R?

• June 2022 contribution amount + earnings (contributed towards 2022 Roth IRA limit)
• January 2023 contribution amount + earnings (contributed towards 2022 Roth IRA limit)
• July 2023 contribution amount + earnings (contributed towards 2023 Roth IRA limit)

If I did want additional assistance when amending my TurboTax return, what is the best way to get in touch with an expert?

[RobertB4444]

For purposes of this amendment you would only include the June 2022 and January 2023 contributions which were for 2022.  The 2023 amounts would be included on your 2023 return.  

In order to connect to an expert in TurboTax you just need to log in to your TurboTax account and click the 'Ask an Expert' button.  You may need to upgrade your TurboTax version in order to have them review your tax return.

@AmendedQuestioner