Removal of Excess Roth Contributions over 2 years

[foil]

I know this question has been asked many times, but I am struggling a bit to apply to my exact situation.  I have a few questions 🙂

In 2020, I contributed $7000 to a Roth IRA which was in excess of what I was allowed.  I had that amount removed prior to filing my 2020 tax return.  I had a taxable amount of $6795 reported on a 1099-R which I received in 2022.  This 1099 had codes J, P in Box 7

In 2021, I made a $1000 contribution to a Roth IRA which I also removed early in 2021.  I received a 1099-R for that removal in 2022 with a taxable amount of $52.  This 1099 had codes 8, J in Box 7.

I entered the 2 1099-Rs in the Wages and Income section of TT.  I received a message that I need to file an amended return for 2020 to account for the excess contribution removal that year.  Question 1 -- do I remove the 2020 1099-R from my 2021 tax return since I will be using that information for an amended 2020 return?

Question 2:  When I get to the Retirements and Investments section in Deductions & Credits, do I answer Yes or No to the question Did I make a Roth IRA contribution in 2021?  I think the answer is No since I withdrew the contribution before filing my taxes.

Question 3:  There is a question -- Tell us if you contributed more to a Roth IRA than was allowed in 2021 or any previous year.  I did make those contributions, but they have all been withdrawn, so is the correct answer "No"?

Thanks in advance.

[DanaB27 · Accepted solution]

Question 1: If you have already entered the 1099-R no need to remove it since 2021 Form 1099-R with code P won't do anything on your 2021 except applying tax withholdings to 2021. Please be aware, if you had tax withholdings then please make sure you keep it on your 2021 return to apply the tax withholdings to 2021.

Question 2: Yes, since you withdrew the 2021 contribution you do not need to enter the contribution.

Question 3: Yes, you will answer "no" to "Tell us if you contributed more to a Roth IRA than was allowed in 2021 or any previous year" since you removed all excess contributions.

You will enter the 2021 Form 1099-R as shown on your 2020 tax return, including taxes, since TurboTax knows that the taxes won't apply to 2020 since it is a 2021 Form.  And you will enter the 1099-R on your 2021 tax return as shown as well to get the taxes applied to 2021.

[Edited 3/13/2022 | 6:22am PST]

@foil 

[foil]

Thank you DanaB27 for your answer.

If I need to amend my 2020 return, as TT has told me to, do I add the 2020 1099-R and that would be it?  I did have both Federal and State tax withheld on the 2020 1099-R, so if I include those withholding amounts when I am working on my 2021 return, should I not enter them when I amend my 2020 return?

[FangxiaL]

You need to enter the 1099-R on your amended 2020 return. Make sure to let TurboTax know that it is a 2021 1099-R form. The form is needed to figure out the tax on the earnings and 10% early distribution penalty.  

@foil

[foil]

Thank you again for your help.  I understand what you are saying but I'm seeing something that seems off to me and hope you can clarify.

When I enter my 1099-R on my 2021 return, it adds the amount I had withheld to my refund amount which makes sense to me.

When I enter my 1099-R on my 2020 amended return, it is applying the withheld amount to the tax that I owe based on the earnings from the excess Roth contribution removal.  

Is this correct?  That I would be getting "credit" for the withheld amount on both my 2021 return and my 2020 amended return?  Make no mistake, I like it this way, but I just want to confirm that is expected.

[DanaB27]

No, the federal taxes withheld from Form 1099-R shouldn't appear on your 2020 Form 1040 line 25b. The withheld federal taxes only should appear on your 2021 Form 1040.

On your 2020 tax return, you made sure to select that it was a 2021 Form 1099-R? 

If you have the federal taxes withheld appear on your 2020 Form 1040 then you might have to delete and reenter your Form 1099-R. Please be aware, federal tax withheld on all Forms 1099 appears on line 25b, so please make sure the amount the tax isn't from another 1099.

@foil 

[foil]

Thanks again. 

I think I know what is going on, but not sure how to proceed, or if this is the proper forum.

Should I be using Turbo Tax 2021 Edition to amend my 2020 return, or go back to the Turbo Tax 2020 Edition for the 2020 amended return?

If I use the 2020 version of TT, I think it is assuming I received a 2020 1099 so it is applying the withheld amount (it does not give me an opportunity to state if the 1099 is from 2020 or 2021).  If I try using the 2021 version of TT (I click the Amend A Return button I want to amend a return and I retrieve my 2020 return), it imports my 2020 return but seems like it wants to start a new 2021 return.

[DanaB27]

You need to use the 2020 version to amend your 2020 tax return. Please see How do I amend my 2020 return? for instructions.

You entered your Form 1099-R with codes J and P in the 2020 amended return,  clicked continue, and the screen that asks what year it is doesn't come up? I've never experienced this issue. Please verify that you have the codes J and P selected.

@foil

[foil]

Thank you so much for you assistance!

I have everything squared away now.  TT behaved as you described it should when I made all the proper entries and designations 🙂