ROTH contribution and over income limit

[timmytes]

I contributed to a ROTH, then realized I hit the top of the income limit for contributions.   I could not recharacterize to a traditional IRA, because my IRA is a deductible IRA, and this money would not be, again because of the income limit.   

I just pulled the money from the IRA and put it into a plain Investment account.   

Do I need to report anything on my 2021 tax return because of this?? 

[MinhT1]

If you withdrew your 2021 excess contribution to your Roth IRA before the due date of the 2021 tax return (April 18, 2022), make sure that you also withdraw the related earnings.

On your 2021 tax return, you do not report the excess contribution as it has been withdrawn. The earnings have to reported in 2021 and taxed. These earnings are also subject to 10% early withdrawal penalty if you are under 59 1/2.

When you receive the 2021 form 1099-R (in 2022) for this withdrawal, there is no further action needed.

[timmytes]

Thanks.  

The ROTH  money was pulled out in 2022 if that makes a difference on what year I report.   

Would this be the case for the $500 I contributed to the traditional IRA, then again pulled out?   
My traditional IRA is a deductible IRA.   I didn’t want to put in  any after tax money and track it…..

thx

[DanaB27]

As MinhT1 stated you will report the withdrawal of the 2021 excess contribution plus earnings on your 2021 tax return. Only the earnings will be taxable in 2021 (IRS). 

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options: 

• You can wait until you receive the 1099-R  2022 in 2023 and amend your 2021 return or
• You can report it now in your 2021 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 2022 1099-R into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything in 2022 tax return but the withholding will be applied to 2022.

To create a 1099-R in your 2021 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 2021?"
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 P and J 
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.

In regards to your return of the $500 traditional IRA contribution, the IRS states:

"If you made IRA contributions in 2021, you can withdraw them tax-free by the due date of your return. If you have an extension of time to file your return, you can withdraw them tax-free by the extended due date. You can do this if, for each contribution you withdraw, both of the following conditions apply.

• You didn’t take a deduction for the contribution.

• You withdraw any interest or other income earned on the contribution. You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income earned on the contribution may be a negative amount."

[timmytes]

Thanks

If I took a loss of $67, then I just put 0 in box 2a?

In Box 7 letter "p" says, "return of contribution taxable in 2020"    Shouldn't it be 2021.   

[DanaB27]

Yes, if you had a loss then you will enter $0 in box 2a.

You can ignore that is says "return of contribution taxable in 2020" for code P in box 7 because TurboTax will ask in a follow-up screen what year the 1099-R is from and when you answer "2022" then TurboTax knows code P means ""return of contribution taxable in 2021".

[timmytes]

Thanks. 

and so this is not technically a recharactarization  is I just puled money out.   
that would be if I moved it from 1 retirement account to another, correct??

[DanaB27]

Correct, you did not recharacterize your contribution you withdrew an excess contribution.

Recharacterization of a contribution is when you change your mind about which kind of IRA you want to make a contribution to. For example, you contribute to the Roth IRA but change your mind and want it to be a traditional IRA contribution. You request a recharacterization with your financial institute and your contribution is treated as if you made a traditional IRA contribution and not to the Roth IRA. The contribution and the earnings will be simply switched into the recharacterized account.

[timmytes]

Thx all.

Last question.   Smart check is asking for the Federal Tax ID of Edward Jones.   I've never been sent a tax document so I'm not sure where it is or where to find it....

[DanaB27]

If cannot find the Federal Tax ID on any of your documents then you need to contact Edward Johns to get the Federal Tax ID.

[timmytes]

Do I enter the ROTH contributions under Retirement and Investments section.   

I can add them but then it just circles back around and asks if you withdrew them and you get to the same spot....

[DanaB27]

Yes, you will enter the contribution under the Retirement and Investments section and will be able to enter the amount of contribution (enter full amount contributed) withdrawn by the due date on the "You currently have a penalty" screen.

If you get an error then you can delete the entry and not enter the contribution since you withdrew all of the contributions.