Should not have contributed to a Roth last year. Earnings too high.

[Evergreen50]

I made too much income in 2023 to contribute to a Roth, but had already contributed to a Roth in 2023.  I am 66 years old.  I had my brokerage firm today take out the Roth contribution with earnings and place it back in the taxable account it came from initially. I put in $7,500, but with earnings, it will be $8,100 that they taken out. 

I will not receive the 1099-R until next year.  How will the IRS know I took out the contribution and earnings before the tax deadline so I don't have to pay a penalty of 6%?  I know I have to pay taxes on the earnings.

[fanfare]

"I know I have to pay taxes on the earnings."

Actually you pay tax on the amount of earnings included in income.

That depends on your prior Roth contributions and conversions.

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return of excess contribution:

before tax filing date including extension: positive earnings allocable to the excess are included in income on 1040 Line 4b for the year of the contribution. negative earnings are ignored; in any case, for purposes of basis, consider the original requested amount as returned.
For a Roth IRA, the taxable amount is found on Form 8606 Line 25c. See Note1

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Note 1: When you take excess plus positive allocable earnings from a Roth IRA,

you have to use Form 8606 to determine the amount to include in income.

It may be zero.

If it is zero you have to update your records for basis in Roth IRA by subtracting the allocable earnings.

@Evergreen50 

[Evergreen50]

Thank you.  I did walk through the IRA contributions section and reported the contribution and of course had my brokerage firm remove the contribution and the excess from my IRA in March 2024.  Does that mean I don't report the excess income and pay taxes on it until I get my 1099-R form for the withdrawl in 2025? 

[DanaB27 · Accepted solution]

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
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 J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

Please make sure that you enter the $7,500 contribution as withdrawn on the penalty screen during the IRA contribution interview:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until the penalty screen and enter the excess contribution amount of $7,500 as withdrawn.

[Evergreen50]

Thank you so much! Exactly what I was looking for...I did have the contribution and excess removed.