How to report the RothIRA removal of excess

[CoolMA]

Hi, when preparing the 2021 tax report last month, I realized I am not eligible to make RothIRA contributions in 2021. Here are the details:

1. I contributed $6000 to 2021 in Jan 2021 (I used to do such contribution every year).

2. When preparing the 2021 tax report last month (March 2022), I realized I am not eligible to make the contributions in 2021 because my MAGI exceeds the limit.

3. Then, I contacted my RothIRA account provider and removed the contribution (and the related tax). Since my RothIRA account did not have the gain till now (the stock market dropped in Q1 2022, they removed about $5200 from my account.) They mentioned I will not get 1099 form until Jan 2023.

Then, my question is, how can I fill the tax report this year? For example:

Should I mention I already contributed $6000 in 2021?

If yes, it seems I need to pay the penalty (based on the TurboTax form), but I already removed it before the tax deadline according to TurboTax's suggestions.  Or, are there any other ways to mention I already remove the contribution if I report I contributed the $6000?

Or I should not mention I contributed $6000 in 2021 and just do it next year when I receive the 1099 Form from my RothIRA account provider?

Please advice. Thanks.

[mama4life]

Hi, I have a similar question.  I did the same as you, except I had excess Roth IRA contributions for several years but only caught it last year (on my 2020 return).  I was able to recharacterize the 2020 excess contributions to a traditional IRA (incl any interest) which I believe avoided the penalty since it was prior to the 10/15/21 extended deadline.  Seems like since it is prior to 4/18/22 deadline, you could amend your 2021 taxes and recharacterize your excess contribution (with interest) to a traditional IRA to avoid any penalty.  I did get a 1099-R this year (for 2021 taxes), but don't believe it affected my taxes for the 2020 excess contribution.

My question is about my excess contributions from prior years.  I already amended my returns for 2019 and 2018 and paid the 6% penalty.  (I still say shame on TurboTax for not catching this and making the connection that my MAGI was over the income threshold---seems like a simple programming connection since literally, TurboTax calculates my MAGI!!).  However, I was not able to recharacterize the prior-year excess contributions to a Traditional IRA (and am very curious to know why) so now the 2021 form is requiring me to pay taxes as if this was an early withdrawal.  It seems pretty crappy that I had to 6% penalty on this excess contribution AND now I'm being penalized again by 10% since it is considered an early withdrawal.   Is this correct? 

[macuser_22]

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@CoolMA wrote:

Hi, when preparing the 2021 tax report last month, I realized I am not eligible to make RothIRA contributions in 2021. Here are the details:

1. I contributed $6000 to 2021 in Jan 2021 (I used to do such contribution every year).

2. When preparing the 2021 tax report last month (March 2022), I realized I am not eligible to make the contributions in 2021 because my MAGI exceeds the limit.

3. Then, I contacted my RothIRA account provider and removed the contribution (and the related tax). Since my RothIRA account did not have the gain till now (the stock market dropped in Q1 2022, they removed about $5200 from my account.) They mentioned I will not get 1099 form until Jan 2023.

Then, my question is, how can I fill the tax report this year? For example:

Should I mention I already contributed $6000 in 2021?

If yes, it seems I need to pay the penalty (based on the TurboTax form), but I already removed it before the tax deadline according to TurboTax's suggestions.  Or, are there any other ways to mention I already remove the contribution if I report I contributed the $6000?

Or I should not mention I contributed $6000 in 2021 and just do it next year when I receive the 1099 Form from my RothIRA account provider?

Please advice. Thanks.

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*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2021 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal Roth distribution but as a return of contribution with a code "JP" in box 7 - then:

You can just report it now 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 also enter the 2022 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld.

The 2022 code JP will not do anything in 2022 but the withholding will be applied to 2022.

You would enter the 1099-R with the total distribution in box 1 (the contribution plus the earnings),

The earnings in box 2a,

Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2019 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2022 1099-R. - That makes it taxable in 2021 and not 2022

After the 1099-R summary screen press continue.

If you are over 59 1/2 then on the "Lets see if we can lower your tax bill" enter the box 2a amount in the "Another Reason" box to eliminate the 10% early withdrawal penalty on the earnings.

Enter the explanation for the excess contribution and that you are reporting a 2022 1099-R on your 2021 tax return to avoid having to amend in 2022.

The box 2a earnings will be taxable income reported on line 4b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form that will be reported on line 59 on the 1040 Schedule 4 form.

If a loss then box 2a should be zero.

[macuser_22]

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@mama4life wrote:

Hi, I have a similar question.  I did the same as you, except I had excess Roth IRA contributions for several years but only caught it last year (on my 2020 return).  I was able to recharacterize the 2020 excess contributions to a traditional IRA (incl any interest) which I believe avoided the penalty since it was prior to the 10/15/21 extended deadline.  Seems like since it is prior to 4/18/22 deadline, you could amend your 2021 taxes and recharacterize your excess contribution (with interest) to a traditional IRA to avoid any penalty.  I did get a 1099-R this year (for 2021 taxes), but don't believe it affected my taxes for the 2020 excess contribution.

My question is about my excess contributions from prior years.  I already amended my returns for 2019 and 2018 and paid the 6% penalty.  (I still say shame on TurboTax for not catching this and making the connection that my MAGI was over the income threshold---seems like a simple programming connection since literally, TurboTax calculates my MAGI!!).  However, I was not able to recharacterize the prior-year excess contributions to a Traditional IRA (and am very curious to know why) so now the 2021 form is requiring me to pay taxes as if this was an early withdrawal.  It seems pretty crappy that I had to 6% penalty on this excess contribution AND now I'm being penalized again by 10% since it is considered an early withdrawal.   Is this correct? 

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You cannot recharacterize a contribution after the due date for the tax return has passed.  If you removed the excess prior to the end of 2021 then  you need to go to the IRA contribution interview excess contribution past to say that it was removed and there is zero excess.