Made excess Roth IRA contribution in 2022, but removed the excess contribution and earnings in March 2023. How to report the earnings on 2022 tax return? Can't find 5329.

[LindaS5247]

TurboTax generates the 5329 if it discovers that you owe extra tax on a variety of situations, such as excess contributions to an HSA or IRA, early distributions from a retirement plan, failure to distribute Required Minimum Distributions, and so on.

Then TurboTax attaches the form to your return.

You can review your Form 1040, and see if any tax from Form 5329 is showing up on Schedule 2, line 8.  To view your Form 1040, while logged in to your return:

• Click on "Tax Tools" on the left of your screen
• Click "Tools" from the drop down menu
• Click on "View Tax Summary"
• Click on "Preview my 1040" on the left hand side of screen

Try entering Form 5329 in the search bar if you are in TurboTax Download Version or switch to "Forms Mode" and over to the left type Form 5329 in the search Box. 

Click here for additional information on Form 5329.

[Edited 04/01/23|9:31 pm PST] @gvrp

[fanfare]

"If you are using TurboTax Online go to tax tools over to the left side of your screen, then tools and search topic and enter Form 5329."

this is useless. It just takes you into this forum.

@LindaS5247 

[DanaB27 · Accepted solution]

To add to Tax Expert LindaS5247 answer. TurboTax will automatically create Form 5329 (part I) for the exception on the 10% early withdrawal penalty after you entered the 2023 Form 1099-R with codes P and J. You don't need to pay the 10% penalty since you removed the excess and earnings since you removed the excess after December 29th, 2022. You don't need to pay the 6% penalty since you removed the excess and earnings before the due date.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 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 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 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 2023 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 "Another reason" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

[Edited 4/3/2023 | 9:10 am PST]

@gvrp 

[gvrp]

Thank you for the detailed step by step instructions. Helped me navigate through the section.

The instructions of form 5329 on the IRS website show that corrective distributions made after 29 December 2022 and before the tax deadline are not subject to 10% penalty. 

So, regarding step 12 of your instructions, in Turbotax, I selected "corrective distributions made after 29Dec22".

Thank you so much.

[Smorr017]

@DanaB27 
I’m in a similar situation and expect my excess 2022 contribution to be removed by Schwab tomorrow. My husband’s was removed today, and all we got was a message that it was done with no actual numbers. I found where I create the 1099-R in TurboTax, but where do I get the numbers to enter? Do you suggest calling Schwab back and asking them to walk me through the numbers that will be on the 2023 form? I’m mostly concerned because it does appear to be charging us the 6% penalty the way I have things now. As soon as I entered our Roth contributions in the deductions section our refund dropped by $720, which is how I discovered the income limit. Will our refund go back up if I get this form entered properly? Thanks so much! I really thought I would get our taxes done in one night this year, and now I’m down to the wire..

[gvrp]

By looking at the transactions out of your Roth account, you will know how much contribution and earnings were withdrawn. As DanaB27 pointed out earlier, if Schwab is withholding taxes, then you may have to wait. In my case, I asked my Roth provider not to withhold taxes.

Since any excess contribution withdrawn prior to tax deadline is considered as not contributed at all, I have  entered only the earnings amount on 1099-R.  If in doubt, you may delete the 1099-R form you created and create again. Following the 1099-R, Turbotax will ask you to select a reason where you may select the box for corrective distributions to avoid the penalty.

[Smorr017]

@gvrp 
It turns out we both took losses, and our distributions were less than what we contributed. So no concern about owing taxes on earnings. I finally got TurboTax to ask the question in the deductions and credits section about how much we removed prior to the tax deadline, which it wasn’t asking before. I don’t know what I was doing wrong. I entered 6,000 there (even though we technically got less than that), because that’s what it required to remove the full penalty. I created that substitute 1099-R form, but when I got to the end it said I would have to paper file to include that so I ended up deleting it. I don’t really understand the purpose of that form since it doesn’t seem to make a difference if you don’t have earnings. Do I really need to amend my 2022 taxes when I get the actual 1099-R next January? This seems like a lot of extra work for nothing. I called the IRS today, and they had never even heard of a substitute 1099-R. Thanks!

[fanfare]

return of excess contribution:

before tax due date including extensions: positive earnings allocable to the excess are taxable on the Line 4b for the year of the contribution. negative earnings are ignored; therefore, do report the entire requested amount as returned .

positive earnings removed are penalized 10% if you are under age 59 1/2.  That's the only situation that would require Form 5329.

Since you had negative earnings. the amount going to 1040 Line 4b is zero.

@Smorr017 

@gvrp