Roth IRA Excess Contribution

[saverhinos]

Thanks for the info.  I was under the impression that the box should not be checked according to the IRS

Do I have that correct

Roth IRAs.

For distributions from a Roth IRA, report the gross distribution in box 1 but generally leave box 2a blank. Check the “Taxable amount not determined” box in box 2b. Enter Code J, Q, or T, as appropriate, in box 7. Do not use any other codes with Code Q or Code T. You may enter Code 8 or P with Code J. For the withdrawal of excess contributions, see Roth IRA under Box 2a. Taxable amount, later. It is not necessary to mark the IRA/SEP/SIMPLE checkbox.

[MRivero]

I think you're right and a penalty will be calculated if you're under 59 1/2.

[DanaB27 · Accepted solution]

No, there is no longer a 10% early withdrawal penalty for withdrawal of excess contributions (Pub 590-B).

Correct, you do not mark the IRA/SEP/SIMPLE checkbox for the Roth IRA.

@MRivero 

[MRivero]

Hi.  If I enter Code J with Code P for the distribution of excess earnings before April 15, TurboTax calculates an additional tax of 10% on the excess earnings.  Is that right?  Thanks.

[AAV]

DanaB27, 

I too have a situation where I made a full Roth IRA contribution of $7,500 in Sep. 2023 which will be withdrawn with gains (but no fed or state withholdings) in March 2024 due to my income level for 2023 being over max. 

I would just like to verify that I correctly understand the steps to handle this on my 2023 turbotax returns:

1.) Enter my Roth contributions of $7,500 in the section asking whether I made any contributions in 2023. 

2.) Enter $7,500 in the section where I'm informed of the penalty in the box titled "Contribution withdrawn before the date of your return" 

3.) Create a form 1099-R as per the 12 step list you provided on my 2023 return in order to report the withdrawal and taxable gain.

And then once I receive the actual 2024 1099-R in 2025, I completely disregard it, not having to enter it into my 2024 filing at all.

Is this all correct?

Been losing sleep over this one and appreciate all your great advice you've provided in this thread!

[DanaB27]

No. Please make sure you enter the earnings on the  "Did you use your IRA to pay for any of these expenses?" screen for the exception of the 10% early withdrawal penalty:

1. Click "Continue" after all 1099-R are entered and answer all the questions.
2. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

@MRivero 

@AAV : Yes, that is correct!

[MRivero]

@DanaB27 Thank you so much!  I followed the steps you suggested, and the 10% penalty disappeared.   I'm so glad this was finally resolved.  I just wish that the TurboTax software had better guidance for the recharacterization process.  This can't be that uncommon.  Thanks, again!

[saverhinos]

Incorrect.  since your 2023 excessive Roth IRA withdrawal Will be reported in 2024 and will be on your 1099-r you receive in 2025 as a 2024 1099-r  with codes J and P , you do not use code 8.   A code 8 would be used if you withdrew the 2023 excessive Roth IRA in 2023.  Since the excessive 2023 Roth IRA WAS withdrawn in 2024. It will have P and J.  

[dmacjr15]

@DanaB27  -- reaching out to see if I have this right. seems your response makes sense but I want to make sure I am putting in the right distribution codes on my 1099-R that I am going to include with my 2023 tax filing. 

I made the excess Roth IRA contribution in 2023, but have corrected this in 2024 before the tax deadline of April 15, 2024.

I put the total distribution in Box 1 and the "gain" on that distribution in Box 2a. Now I am confused as what to select for Box 7 --- I think I should select code J and then code 8 (code 8 says it is return of contribution taxable in 2023) --- But in "forms" under "verify Box 7 distribution codes" there seems to be A4 and A5 choices that help explain what I am trying to do on my taxes. Do I check both box A4 and A5 ? Also, I am under 59 1/2 as this seems to be mentioned in the string as well.

Any guidance on this would be great. Just little confused on this form.

thanks

Dennis

[DanaB27]

You will use codes P and J since you made the Roth IRA contributions in 2023 and withdrew them in 2024.

Only A5 should be checked.

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of the 2023 excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
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 2024 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 "Corrective distributions made before the due date of the return".

@dmacjr15 

[saverhinos]

What is A5 in your response “Only A5 should be checked” 

[AnnetteB6]

The reference to A5 is answering a question asked by user dmacjr15.  That user is looking at their Form 1099-R in Forms Mode using a CD/downloaded version of TurboTax.  When doing so, there is a section visible at the bottom of the Form 1099-R where there are lines labeled A1 through A5.  That user was asking which of those lines should be checked.  

This information is not accessible through the Step-by-Step method of entering your Form 1099-R, but it is filled in automatically based on the inputs that you make.  

@saverhinos 

[lemon2]

Hi @DanaB27, I withdrew my excess Roth IRA contributions based on what turbotax has calculated for me and then followed your 1099-R steps. However, turbotax is now considering the amount I withdrew as income and has increased the amount I need to withdraw/is saying I have a 6% penalty. What should I do in this case?

[DanaB27]

The earnings from the excess contribution are taxable on your 2023 tax return and will increase your Modified Adjusted Gross Income (MAGI). Therefore, it is best to remove a little extra when you are in the phaseout range for Roth IRA contributions.

To fix the new excess contribution you can request another withdrawal of excess contribution plus earnings and remove a little extra to avoid the issue.

Please see What happens if I made an excess Roth IRA contribution for other options.

@lemon2 

[lemon2]

Thanks @DanaB27!