What/how do I report a removal of excess Roth IRA contribution made in 2018?

[DanaB27]

 Generally, if you had no earnings when you withdrew the excess contributions then you have no taxable event and all that TurboTax would do, when you amend your 2022 return, is add explanation statements for the withdrawal of the excess contribution (with loss) and the recharacterization.

Therefore, you don't need to amend your 2022 tax return. If you want to add the explanation statements then I would wait until you receive the 2023 Form 1099-R in 2024.

You will get Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2022 and this belongs on the 2022 return. But a Form 1099-R with code R will do nothing to your return. You can only report it as mentioned below. Therefore, you can ignore the 2023 Form 1099-R with code R when you get it in 2024.

You will enter the recharacterization when you enter the contribution to the traditional IRA: 

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Traditional To a Roth IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions minus loss. This 1099-R belongs on your 2022 tax return but only earnings listed in box 2a are taxable. If you had a loss box 2a should be $0.

@ninnh5 

[ninnh5]

Thanks @DanaB27 i appreciate the insights. 

So technically i don't need to amend my 2022 returns for any of the re-characterization or return of excess. do i have correct understanding? 

for my wife's $3.7k recharacterization from traditional to roth the brokerage only transferred $3.2k, as brokerage said the $500 are net losses that took place during the market events in 2022. Do i have to report that in 2022 or it will be reported during my 2023 recharacterization? 

[DanaB27]

The recharacterization of a 2022 contribution is reported in your 2022 tax return but all that TurboTax does is add an explanation statement. You don't have any taxable event and therefore no changes to your refund. Therefore, you technically don't need to amend your 2022 return. But if you want to add the explanation statements for the recharacterization and withdrawal of the excess contribution with a loss then you can do so when you receive the 2023 Forms 1099-R in 2024.

@ninnh5 

[ninnh5]

so when can i benefit from losses? or do losses just get evaporated? since 2022 won't show the losses in the return so just curious, what happens to the losses? 

[DanaB27]

Unfortunately, you cannot deduct the losses anywhere.

@ninnh5 

[mkxi]

Hi, I am having difficulty with removing an excess Roth IRA contribution too.

I made the contribution in 2021 and then did a recharacterization before the filing deadline, however I seem to have messed it up on my 2021 tax return, which has a Form 5329 with box 18 "Enter your excess contributions from line 24 of your 2020 Form 5329" equal to the amount of the contribution (this is wrong because the contribution happened in 2021, not 2020).

So my 2021, 2022, 2023, and (pending) 2024 tax returns all incorrectly have a Form 5329 showing that contribution and taxing me on it as if I hadn't recharacterized. I realize I likely need to amend 2021, 2022, and 2023, but for now I'm just trying to get it fixed on my 2024 tax return.

In the Roth IRA section:

1. I enter the old contribution amount when it prompts for "Enter Excess Amount".

2. I answer "Yes" to "Did you withdraw excess contributions made to a traditional IRA after the due date of last year's return?" (not accurate since I did the withdrawal in 2022, but I'm just trying to make it work).

3. I enter the old contribution amount when prompted for "Amount of Excess Contributions Withdrawn"

4. I click through the rest of the fields

Despite doing this, my 2024 tax return still has a Form 5329 showing tax for the old excess contribution. How can I get rid of that?

I'd also appreciate advice on whether I should even attempt to do this before amending my previous tax returns, or more general advice on how to clean this situation up. Thanks!