Withdrawal of excess Roth contribution in 2020.

[amarone58]

I have read the posts about withdrawing excess Roth contributions made in 2023.  I made an excess contribution of $7,000 in 2020 and only just noticed when I saw Turbo Tax was calculating the 6% penalty in my 2023 return.  There was no penalty on my 2020 return (prepared by a CPA), but 2021 and 2022 (done by me with TT) had the penalty.  I have directed Vanguard to withdraw the excess. They said I only need to withdraw the $7k, not any earnings - is that right?

I am trying to avoid the penalty for 2023.  TT adds it, even though I have manually entered a 1099-R as directed in the other posts (using codes P and J).  I had hoped to avoid the penalty by withdrawing the contribution before submitting my return.  Does that only apply to withdrawing an excess made in the same tax year?

Is there any way I can enter the withdrawal without paying a penalty for 2023?  If not, am I best deleting the 1099-R and trying again next year and thereby avoid the penalty in 2024?

[DanaB27 · Accepted solution]

Yes, when you withdraw the excess contribution after the extended due date then you can leave the earnings in the account. 

You will have to pay the 6% penalty for 2023 since the excess was still in the account on December 31, 2023. Next year when you enter the 2024 Form 1099-R with code J (if under 59 1/2) the excess will resolve and you no longer pay the penalty.

Yes, the Form 1099-R with codes P and J is when you removed the excess contribution plus earnings before the due date. Yes, delete Form 1099-R if you added it on your 2023 return.

You stated that you did not pay the 6% penalty on the 2020 return, but if you had an excess contribution for 2020 then you need to have 6% penalty, calculated on your 2020 Form 5329 part IV.

[fanfare]

Vanguard is correct.

When you file your 2024 tax return, you can report the withdrawal that happened in 2024.

@amarone58