Roth IRA Excess Contribution

[ljwil123]

I have a similar but different situation, made an excess Roth contribution of $6500 in 2023 and realized it before filing this year. Difference is that I had losses of $2147.41 making my withdrawal $4352.59. I posted the question on here of how to handle this on my taxes and it was answered similar to what you’ve described. I was told to do a substitute 1099-R, enter $6500 in box 1, then code P and code J in box 7 and for year 2024, which I did. I was told that since this amount is more than the broker will report, the IRS won’t be concerned about it, they’d only be concerned if it were less.
Looking at my forms though, it shows on line 4a the $6500. distribution and line 23 other taxes of $390 from schedule 2(additional tax on IRAs) this also shows on form 5329 line 25. I did notice that line 22 of form 5329 (prior year excess contributions) shows my $6500 contribution instead of it being on line 23(excess for 2023) although I don’t believe this is generating the $390 in extra tax. What am I doing wrong, as I didn’t think I’d be paying taxes on this?

[ljwil123]

@DanaB27 
I have a similar but different situation, made an excess Roth contribution of $6500 in 2023 and realized it before filing this year. Difference is that I had losses of $2147.41 making my withdrawal $4352.59. I posted the question on here of how to handle this on my taxes and it was answered similar to what you’ve described. I was told to do a substitute 1099-R, enter $6500 in box 1, then code P and code J in box 7 and for year 2024, which I did. I was told that since this amount is more than the broker will report, the IRS won’t be concerned about it, they’d only be concerned if it were less.
Looking at my forms though, it shows on line 4a the $6500. distribution and line 23 other taxes of $390 from schedule 2(additional tax on IRAs) this also shows on form 5329 line 25. I did notice that line 22 of form 5329 (prior year excess contributions) shows my $6500 contribution instead of it being on line 23(excess for 2023) although I don’t believe this is generating the $390 in extra tax. What am I doing wrong, as I didn’t think I’d be paying taxes on this?

[dmacjr15]

@ljwil123  

I am confused on what forms you are seeing these issues, but I followed the steps from @DanaB27  and I was able to get through the process to import a 1099-r on this years tax filing. TurboTax came back with the exact steps per below and processed with no errors.

now next year (2024) I will get the 1099-r from my financial institution as the excess withdrawal was done in year 2024 but before the 2023 tax year filing due date. all should be fine as I claimed the "gain/loss" on this years taxes as I should have. I clearly laid out on this years taxes that my Roth IRA distribution was due to it being excess and I followed the steps in IRS Pub. 590-A.

_______________________________________________________________________________________________

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".

[ljwil123]

Let me explain a little better. I printed up my 1040 and all the forms/worksheets after following the instructions on here as I was told.  This is where I saw my $6500 IRA distribution on line 4a and the $390 Additional tax on line 25 of form 5329(additional taxes on qualified plans including IRAs etc.) This $390 is also on line 8 on schedule 2 and line 23 on my 1040 adding $390 into my total tax due.

These are the steps I followed:

Under WAGES AND INCOME in TurboTax

then RETIREMENT PLANS & SOCIAL SECURITY 

IRA, 401K PENSIONS 1099-R

I filled out the 1099-R putting $6500 in Box 1 and Zero in Box 2 as I had losses on this excess contribution in my Roth. I used codes J and P and Yes, the amount I owed went down after putting in the P code making me think these steps all worked.  Nowhere did i see the question "Did you use you IRA to pay for any of these expenses" Maybe because I had no earnings?  So this tab shows $6500 on my TurboTax main screen

Under DEDUCTIONS AND CREDITS

RETIREMENT AND INVESTMENTS

TRADITIONAL & ROTH IRA CONTRIBUTIONS

I answered all the questions about the contribution and then withdrawing the contribution before I filed my taxes this year. This column on my TurboTax main screen shows 0.

So long story short, I'm being charged the 6% additional tax of $390 on my 1040 and wondering what I've done wrong?  

Also I am over 59 1/2 years old

I sure would appreciate any help on this

[dmacjr15]

ah ok now I see what you are saying, but the steps I took did not throw any amount on form 5329 line 25. my form shows the "gain" on my excess contribution on line 1 and 2 form 5329. you have to include that as income for 2023 taxes but not sure what else could be causing the issue on your end. 

This is where I am not the expert and why I put this question out to the community for help. Seems the steps I listed from that Dana person expert worked for me. 

Sorry I can't be of more help but all I can think of is there a step in the process I sent you where by maybe you clicked or not clicked the right box, hence causing TurboTax to think t you have a 6% penalty. Not sure if being over 59 1/2 or under may also play into this issue.

[wahts2]

If you have a loss on your excessive contribution. The company whom you use will calculate your withdrawal after deducting the loss. You can ignore reporting it. Proceed as if you never have the excess contribution.

[DanaB27]

It seems you answered "yes" on the "Do you have any Excess Roth Contributions" screen and entered that you had a prior year excess contribution since you have an amount on line 22 of Form 5329.  Also, make sure if you entered a Roth IRA contribution that you enter the excess contribution as withdrawn of the penalty screen (another option is to not enter the contribution at all). Please review these entries:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Enter Excess Contributions" screen delete any entries
5. Continue until the penalty screen and enter the excess contribution amount withdrawn.
    

@ljwil123

[ljwil123]

@DanaB27 

Thank you for this information, It looks like it worked, although I've left the excess withdrawn as $6500.  But should I put the amount of the actual withdrawal which was less than my contribution due to losses or the full $6500 I initially contributed, on the "enter the excess contribution withdrawn" line?

And do I still enter the 1099-R information with the same amount as I will be getting one next year and it will show the withdrawal of $4352.59 with a separate paper explaining the loss of $2147.41? 

I really appreciate your help!

[DanaB27]

You will enter the excess contribution amount of $6,500 as withdrawn.

Yes, you will enter the Form 1099-R with code P and J:

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 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 2024 Form 1099-R.

Yes, TurboTax will ask for an explanation statement.

@ljwil123 

[taxun]

I'm in almost the exact same situation as the OP (saverhinos) except that I made my contribution in 2024, not 2023.

According to a post made by DanaB27 on page 1, because I made the contribution and withdraw (plus earnings) in 2024, I will "have code 8 and J on your 2024 Form 1099-R, and it will have to be reported on your 2024 tax return".

For my 2023 taxes, when going through Turbo Tax, under the "Traditional and Roth IRA Contributions" section, I reported a 6500 contribution, then a couple screens later reported I withdrew a 6500 contribution (TT never asked about earnings). On my "Your tax breaks" screen it shows a big fat zero for my "Traditional and Roth IRA Contributions". Sounds good right?

So other than that, there's nothing left to do on my 2023 taxes? Just file as is, and wait for my 1099 (which I will report on my 2024 taxes).

Just want to triple check before I file for 2023.

Thanks!

[ljwil123]

Thank you for all your help!

[DanaB27]

Yes, that is correct. 

@taxun 

[dramseyliny]

Great tips.........  I'm in the same boat.  Just want to confirm that codes P and J in box 7 of the 1099-R is for ROTH IRA and not for a regular IRA.

Also, if I need to process a ROTH IRA Excess contribution for the 2022 tax year that I corrected in March 2024, where on the desktop version of the 2022 TurboTax version do I indicate the this a "Return of a ROTH IRA Contribution AFTER the Due Date of the Tax Return".  I do not see any option anywhere and when it gets to the "Explanation" statement page, it constantly states "Return of a ROTH IRA Contribution BEFORE the Due Date of the Tax Return".

Do I just ignore this and state in the explanation it a correction AFTER the Tax Due Date?

[jannethu]

I have a similar situation as the string starter Saverhino. I withdrew my excess Roth contribution of 2023 in early Apr 2024. My question is: if I choose to deal with the 2024 form 1099-R next year when it is issued, 1)Do I need to enter the Rothcontribution in TurboTax? 2) Can I report the capital gain in my 2024 tax filing or I have to amend my 2023 tax filing?

Thank you very much!

[saverhinos]

When you get the 2024 1099-r in 2025 you have to report it on an amended 2023 return.