Removing Excess Roth IRA contributions from 2021

[rewashp]

Hello, I made an excess contributions in my Roth IRA for year 2021 and year 2022. I have removed these excess contributions in 2023 with help of my IRA custodian before tax filing deadline for 2022. How do I report both untimely and timely removal of excess contributions using Turbotax? Also will I need to file an amended tax return for 2021 even though I never reported the roth IRA contributions or took any deduction for IRA on 2021 return?

[DanaB27 · Accepted solution]

Yes, you will have to amend the 2021 tax return to pay the 6% penalty on the 2021 excess. All you need to do is to add the Roth IRA contribution and then TurboTax will create Form 5329 with the 6% penalty. Please see How do I amend my federal tax return for a prior year?

You also will have to pay the 6% penalty for the 2021 excess on your 2022 return because the excess wasn't removed until 2023. But you don't have to pay the 6% penalty for the 2022 excess since you removed it before the due date. 

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth IRA contribution
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2021
7. On the penalty screen enter the contribution amount for 2022 as removed by the due date.

The 2021 excess should have been removed as a regular distribution without earnings since it was removed after the extended due date of the 2021 return and should be reported on the 2023 Form 1099-R with code J (or code T if you are over 59 1/2).

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of the 2022 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.

[rewashp]

@DanaB27 I was a non-resident on F1 visa when I filed 2021 taxes with 1040NR form using Sprintax software.  Will I need to amend 2021 return using the Sprintax software or can I import the old returns from Sprintax to Turbotax?

[fanfare]

once you complete 2021 Form 5329 to determine the penalty, you can file 2021 Form 1040-X prepared manually.

With Form 1040-X you attach only the new or changed Forms or Schedules, namely Form 5329.

do not include the old 1040 nor the revised 1040, since 1040-X becomes your new tax return.

get Form 1040-X from IRS website and mail it in with your 5329, which you can also get in fillable PDF.

The amount you owe, 1040-X line 20 should be the amount of the 6% penalty.

@rewashp 

[fanfare]

OK the excess penalty also appears on Schedule 2 (Form 1040)  Line 8.

You'd have to attach also  a revised Schedule 2 or IRS might complain.

@rewashp 

[rewashp]

Thank you @fanfare @DanaB27 for the answers. Will I need to include 1099R forms which I receive next year in the 2021 amended tax return or just for 2022 tax return?

[DanaB27]

The 2023 Form 1099-R with code J (or code T if you are over 59 1/2) for the regular distribution of the 2021 excess will be entered on your 2023 tax return.

The 2023 Form 1099-R with codes P and J for the 2022 excess plus earnings will be entered on your 2022 tax return. The earnings are taxable on your 2022 tax return but are not subject to the 10% early withdrawal penalty since you removed it after December, 29th, 2022.

@rewashp 

[mcarvv]

@DanaB27 

If the timely removal you took out in 2023 for the year 2022 took a loss, and therefore there were no earnings, do you still have to either create a 1099 R while doing 2022  taxes or amend your 2022 once you get the 1099R in 2024? Or do you report them on your 2023 taxes?  Or can you disregard since there are no earnings to be taxed on? Just confused where this removal will get reported once I get my 1099 for it in 2024

[DanaB27]

The 2023 Form 1099-R with codes P and J for removal of the excess contribution for 2022 will be reported on your 2022 tax return.

If you have the information, then I would recommend creating Form 1099-R to report the withdrawal of excess contribution with a loss. There won’t be any taxable income, but TurboTax will add an explanation statement for the IRS.

If you wait until you receive the Form 1099-R then it isn’t necessary to amend your return since there isn’t a taxable income with a loss and it won’t change your return. All that TurboTax will do is add the explanation statement.

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 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 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.

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.

@mcarvv