Roth IRA withdrawn excess contributions

[taxpayer211]

I contributed $6000 to my IRA in 2022 before realizing that my salary was going to increase enough to make me ineligible to make that contribution. I have since withdrawn the contribution plus earnings.

I will not be receiving the 1099-R form for this until early next year.

On these forums I have read that I can submit a manually-entered 1099-R on the basis of what I expect it to say.

I followed the advice here: https://ttlc.intuit.com/community/taxes/discussion/reporting-excess-roth-ira-contribution/00/1900728

I have done this and I believe things are in order on the federal side, but when I go to my state tax return, it is listing the $6000 plus earnings as additional income that I am getting taxed on. This shouldn't be the case, because the $6000 I contributed is already accounted for in my W2. I can't see a way to adjust this because it is taking the information from the federal return. How do I fix this issue?

Thank you

[MichaelG81]

Yes, if this is a pre tax deferred plan or traditional IRA, when the excess is removed you will be taxed on the amount removed because it was basically deducted from taxes on your paycheck. So, when entering it, your federal due is supposed to go up, or your refund down, due to the contributions being counted as pretax dollars before the excess was recognized. When you now say they are not pre tax dollars you will see the tax appear; or when you say its not contributed to a tax advantaged plan or retirement account. Also, to avoid an additional 6% penalty you did right by removing the contribution and interest or earnings.

@taxpayer211 

[taxpayer211]

Thank you for the reply. But this was not a pre-tax plan - it was a Roth IRA which I contributed to from my take-home pay (post-tax). Basically, I took $6000 of what I had in my checking account and deposited it into this Roth IRA, then withdrew $6000 (plus earnings) when I realized I wasn't eligible. The $6000 is already included in my reported AGI income because that's where it came from.

Is there some way to designate that as pre-tax? @MichaelG81 

-edit

Actually, I may have figured it out. There is a section for: "Taxable IRA/Keogh Distributions"

Can I include $6000 as "Other Contributions Previously Taxed by the state" given that this is already included in my taxable income for this year?

[MichaelG81]

No, if it was after tax money you can take the excess Roth IRA out without additional taxes, but still have to pay taxes from your W2 income. The only tax will be on earnings of the Roth. If not removed by April 15 , 2023, the general date, then an additional 6% penalty will apply, just let TurboTax know you are withdrawing the excess in the interview plus interest to remove penalty. Make sure to tell the Roth IRA admin that this is an excess withdraw. 

If you have an excess on Roth you will have an excess on a traditional IRA pretax advantaged account too. You may have a plan at work that makes you ineligible or you made more than 6000 combined to a traditional or Roth IRA; or 7000 if catch up. This shows the maximum of how much you can contribute in case you have a plan at work or not.

@taxpayer211 

[taxpayer211]

"No, if it was after tax money you can take the excess Roth IRA out without additional taxes, but still have to pay taxes from your W2 income. The only tax will be on earnings of the Roth. If not removed by April 15 , 2023, the general date, then an additional 6% penalty will apply, just let TurboTax know you are withdrawing the excess in the interview plus interest to remove penalty. Make sure to tell the Roth IRA admin that this is an excess withdraw. "

Yes, I get that, and I've entered into TurboTax that I have withdrawn the 6000. I also filled out a form 1099-R presumptively, to declare the earnings that I made. I have already withdrawn the 6000+earnings and it was labeled an excess withdrawal including earnings. 

1- Is it appropriate to fill out the 1099-R as if I had received it already (it's not going to come until next year)

2- For my state return, is it appropriate to enter 6000 in the "Other Contributions Previously Taxed by the state" box? (In the "Taxable IRA/Keogh Distributions" section"?

@MichaelG81 

Thank you

[DanaB27]

1) Yes if you know the earnings and total distribution amount then you can enter Form 1099-R as if you had received it to avoid having to amend your 2022 tax return.

2) Yes, for your state return you will enter the contribution amount in the "Other Contributions Previously Taxed by the state" box in the "Taxable IRA/Keogh Distributions" section.

@taxpayer211 

[taxpayer211]

Thank you @DanaB27 for the answers.

Now I just found out that there was federal and state tax withholding on the distribution and I am trying to include that. I put the federal tax withheld in box 4, state tax withheld in box 14, and the contribution plus earnings in box 16. I put the state/abbreviation in box 14/15. But Turbotax is still calculating that I owe these taxes. Am I doing something wrong here?

Is it better in this case to just not report these earnings until I get the 1099-R? I read from your previous post that I would need to amend 2022 return for some reason?

[DanaB27]

If you had taxes withheld, you won’t need to enter the taxes withheld with the entered 2023 Form 1099-R with code PJ on your 2022 tax return. The taxes withheld on a 2023 Form 1099-R with code PJ will be only applied to 2023. Therefore, you will have to enter the 2023 Form 1099-R with code PJ also on your 2023 tax return when you get it. TurboTax will ignore the distribution because of the code P but apply the withheld taxes toward your 2023 tax return.

Yes, if you wait until you get the Form 1099-R and do not enter a Form 1099-R with code PJ now then you would have to amend your 2022 to report the distribution. The earnings on an excess contribution for 2022 are taxable in 2022. 

@taxpayer211

[taxpayer211]

So to summarize:

I contributed to my Roth in 2022, withdrew funds in 2023, will not get a 1099-R until 2024, and you are saying this will 1099-R will say "2023" and I can expect it to be coded PJ.

I fill in my 2022 returns with the expected amounts, but do not fill in the taxes withheld. On my 2022 return I am paying the taxes on the earnings (even though these taxes have already been withheld in 2023), and in 2024 when I file 2023 returns I will include this "2023 1099-R" again, and I should have the duplicated taxes resolved at that point?

Also, one final question. I plan to use what I withdrew (6000) and place it in a new traditional 2022 IRA, and then backdoor back into Roth. What would be the best way to report this? Would I be reporting 12000 contribution to Roth? Or 6000 to Roth and 6000 to traditional? Again I don't know if I can expect any tax forms for all of this before taxes are due - do I need any?

Thank you, you have been so helpful @DanaB27 

[DanaB27]

Yes, that is correct.

On your 2022 tax return, you would enter the $6,000 nondeductible traditional IRA contribution for 2022. This will create the 2022 Form 8606 with a $6,000 basis on line 14. This will have to be entered next year on your 2023 tax return. 

You will enter the $6,000 contribution for 2023 and the conversion on your 2023 tax return.

To enter the nondeductible contribution to the traditional IRA on your 2022 and 2023 tax return:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (on your 2022 return. For your 2023 return 2022 Form 8606 line 14)
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion on your 2023 tax return: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

 @taxpayer211