Dealing with an excess Roth IRA contribution that lost value before being withdrawn.

[Torchwood]

I had an excess contribution in 2021 which I have worked to get withdrawn. The account lost value between the deposit and withdrawl so the amount I got back was less than what I deposited.

When TurboTax asks me for the excess amount withdrawn, do I enter what I originally contributed or what was returned to me after the losses?

(I'm worried if I enter what I was actually returned it won't calculate that the entire excess contribution was undone.)

Thank you!

[DanaB27 · Accepted solution]

You will enter the originally contributed excess (without losses or earnings) on the penalty screen during the IRA contribution interview.

If you withdrew the excess in 2022 you will get a 2022 Form 1099-R  in 2023 with codes P and J for the withdrawal of excess contribution and loss. This 1099-R will have to be included on your 2021 tax return but won't be taxable since you had no earnings and you have two options:  

• You can wait until you receive the 2022 Form 1099-R in 2023 and amend your 2021 return or
• You can report it now in your 2021 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 2022 Form 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything to the 2022 tax return but the withholdings will be applied to 2022.

To create a Form 1099-R in your 2021 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 2021?"
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 2022 1099-R.

[Torchwood]

Thank you - this makes perfect sense! I would greatly prefer to enter the 1099-R info now using the figures I have so I'm going to choose that option.

One other question: my 2021 excess contributions were spread across 2021 and early 2022. When I received the withdrawal, it was send in two parts (I believe one was for the 2021 excess and one for the 2022 excess).

Will these be combined on a single 1099-R when I receieve that latee this year or would I need to enter them individually since they were returned in two separate transactions?

[DanaB27]

The withdrawal of the excess contribution for 2021 (even when made in 2022) removed in 2022 will be reported on a 2022 Form 1099-R with codes P and J. 

If you had an excess made for 2022 and remove in 2022 then you should get another 2022 Form 1099-R with code 8 and J. This would go on your 2022 tax return.