Roth IRA excess contribution - Incorrectly coded 1099-R

[Ana C]

Hello everyone. I'd appreciate your guidance on the following. My daughter made an excess contribution to a ROTH IRA of $6,000 in Feb'22 which was withdrawn with a regular distribution of $6,000 in April'23. We should have but did not follow the excess contribution correction process from the Trustee and did not realize it until we recently (Feb'24) received a 2023 1099-R with a J (early distribution, no known exception) in box 7. We've asked the Trustee to re-code the 1099-R to show a correction of a 2022 excess contribution, but they've said they could not due to IRS deadlines. I've calculated the earnings/loss from the contribution per Pub 590-A worksheet 1-4 and there is a loss of $210. 

My question is, what do we do now? Can we ignore the 1099-R with the J code and file an amended 2022 return including a 1099-R with code P and J? Do I need to include a statement explaining this with the return? If we do this, will there be an issue later with the 2023 1099-R with code J? Or, do we file an amended 2022 return paying the 6% tax on the $6,000 and then file 2023 including a regular distribution to offset the excess contribution? Or, is there another option?

Thank you for your input. 

[TeriH · Accepted solution]

Great question

No, you do not need to enter the 2023 Form 1099-R with code JP on your 2023 return since you had no taxes withheld. For your information, if you entered the form already then you do no need to remove it since the 2023 code P will not do anything to the 2023 tax return income but it will apply any tax withholdings to 2023. 

No, you do not need to amend your 2022 tax return. You do not need to enter contribution since you withdrew the contribution before the due date. You also don't need enter the Form 1099-R with code JP on your 2022 return because it will not change anything on the 2022 return since you had a loss. You had no taxable event since only earnings are taxable with the return of excess contributions. All that TurboTax would do is add an explanation statement. 

The loss isn't deductible. You don't need to amend your 2022 tax return since with a loss you have no taxable income to report. All that TurboTax would do is add an explanation statement when you enter the Form 1099-R with PJ with a loss.