I removed my excess Roth IRA contributions, but I had taxes withheld. Does this mean I can't create a "mock" 1099-R?

[CatmanScrothers]

Well, TurboTax community, I think I've really stepped in it this time. I put $1,700 into a Roth IRA in the first few months of 2021 before we both got raises and I realized our family's (MFJ) income would be too high to make any Roth contributions at all. In 2022,  after getting to the IRA section of my TurboTax return and doing some cursory Googling, I did a removal of 2021 contributions and gains with Betterment, my Roth provider, which automatically calculated the gains (about $200, for about $1900 total). And I remembered that there was a 10% excise tax on early withdrawals, so I entered 10% in the tax withholding field.

I went back to the IRA section of TurboTax (the web app, in case it matters) and followed the prompts to say that I'd withdrawn my contributions. That seemed to settle things for TurboTax: there was no prompt about the income on those contributions. "But wait," I thought. "Don't I have to pay taxes on the gains? And an excise tax on early withdrawals?" And that's when I learned that I wouldn't be getting a 1099-R until Jan. 2023, and found posts from @macuser_22 here and u/myroller on Reddit saying to create a "mock 1099-R" if I wanted to avoid that.

I'd love to do that. But I realize now that because I had Betterment withhold taxes -- and, as it turns out, the 10% withholding was on the ENTIRE WITHDRAWAL, not just the gains -- I don't think I can go the "mock" route, right? I asked Betterment if they'd cancel the withholding and give me the money, but I'm doubtful they will. It sounds like I just have to file an incorrect tax return and a 1040-X next year after I get a 1099-R? Do I have this right?

[DanaB27]

Yes, you will still be able to create Form 1099-R for the withdrawal of excess contributions plus earnings since the earnings will be taxable in 2021 but the taxes withheld will have to go on your 2022 tax return.

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options: 

• You can wait until you receive the 1099-R  2022 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 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 in 2022 tax return but the withholding will be applied to 2022.

To create a 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 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.

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

[macuser_22]

You can enter it now with the known excess amount re moved and the known earnings, but not the tax withheld which can only be entered for the year withheld.   That is why you shroud never have withholding on a return of contributions.

.*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.

[CatmanScrothers]

So if I understand you right, if I don't want to amend, I should create a 1099-R for each of the next two years:

This year, filing my 2021 tax return, I create a mock 1099-R to report the *income* this year (and pay taxes on it), but do not report the withholding, because Betterment won't tell the IRS about it until 2022 is over?

And next year, filing my 2022 taxes, I should use the withholdings from the actual 1099-R to reduce the taxes I owe that year? What should I do about Box 1 and Box 2a? Leave them blank? Write "0"? Because I would have already reported those amounts on my 2021 tax return.

[CatmanScrothers]

Thanks, @macuser_22. Your post was similar to @DanaB27's post, so please see the follow-up question I asked Dana. I want to make sure I do the right thing.

[DanaB27]

Yes, you create the 1099-R on your 2021 return, like mentioned above, to avoid having to amend your 2021 return when you get the actual 1099-R next year. You do not enter any taxes withheld because they belong on the 2022 return.

When you file your 2022 return you will enter the 1099-R as received. Ignore the message that you have to amend your 2021 return and TurboTax will know that the distribution isn’t taxable in 2022 because of the code P, but it will apply the taxes withheld to your 2022 return and reduce the taxes you owe that year.

@CatmanScrothers

[macuser_22]

---

@CatmanScrothers wrote:

Thanks, @macuser_22. Your post was similar to @DanaB27's post, so please see the follow-up question I asked Dana. I want to make sure I do the right thing.

---

See DanaB27's post which is correct - the code P in 2022 will handle the withholding and ignore box 1 and 2a.

[tax93]

DanaB27 Thanks for the details. Do I need to mention the Gross distribution amount (box 1) in box 16 (State distribution amount) too or can I leave box 16 blank?

My state is California and I did not withhold any federal or state taxes when removing excess ROTH contribution. 

[DanaB27]

Yes, you will enter the Gross distribution amount from box 1 in box 16.

@tax93

[tax93]

Thanks @DanaB27 for the quick response.

A quick follow-up query on the same - can I leave box 15 blank (State ID/ Payer's State No)? I don't have these details with me as I don't have the 1099-R yet (which would likely be mailed only next year). I prefer to not have to amend the tax return if the actual 1099-R (that would be mailed next year) ends up having different information from what I put in my tax return, hence being cautious. Thanks!

[AmyC]

Yes, you can leave the taxes withheld boxes blank as that money will go on your 2022 return as @DanaB27 described above. The tax is not related to 2021, not reported in 2021, so not on your return for 2021.

[tax93]

Thanks @AmyC . I'll keep the 'State tax withheld' box i.e. box 14 blank, as suggested. I was not sure about box 15 (State ID and Payer's State No.) - whether it would be okay to keep them blank since that information is not available to me as the 1099-R will likely only be provided next year.

[AmyC]

Your resident state will automatically tax all income and the federal amount will be picked up by your state. Since it is probably all related to your resident state, you should be able to have nothing in the state area. If you don't have the state payer's id and it is the same state as your residency, you can leave the entire state area blank. 

@tax93