topic Re: Roth IRA Excess Contribution in Retirement tax questions

Roth IRA Excess Contribution

saverhinos — Sat, 16 Mar 2024 16:21:14 GMT

I made an excess Roth IRA contribution in 2023 and did not realize until 2024. I withdrew the 2023 contribution in February of 2024. I contributed $ 7500 and when I withdrew it in 2024 the taxable earnings were $ 2510. My total withdrawal was $7500 + $2510 = $ 10,010. I see there have been different ways to handle this. One way was wait until I get my 1099-R in 2025 for 2024. The other way would be to declare it in my 2023 tax return. Some say enter a manual 1099-R with my 2023 return. If so what do I do in 2025 when I get a 2024 1099-R to file with my 2023 return. Also do I enter the Roth IRA contribution in TurboTax and then say I withdrew it or just ignore it like I never made the contribution. If I ignore the contribution, IRS is still getting a form 5498 saying I contributed to my 2023 Roth IRA

Thank you for your help

Re: Roth IRA Excess Contribution

DanaB27 — Sat, 16 Mar 2024 16:59:01 GMT

You can either enter the Roth IRA contribution and the enter on the penalty screen that you withdrew the excess contribution or you can not enter the Roth IRA contribution at all. Both options are correct.

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:

Login to your TurboTax Account
Click on the "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Answer "Yes" to "Did you get a 1099-R in 2023?"
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2a enter the earnings
Box 7 enter J and P
Click "Continue"
On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
Click "Continue" after all 1099-R are entered and answer all the questions.
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.

Re: Roth IRA Excess Contribution

saverhinos — Mon, 18 Mar 2024 23:58:54 GMT

Thanks for the info. If it wait and file an extension in 2025 and Since I do not get the 1099-r until 2025, won’t the IRS still think I made the contribution in 2023 and will be looking for the tax on the earnings of the excess contribution

Re: Roth IRA Excess Contribution

DanaB27 — Tue, 19 Mar 2024 15:27:27 GMT

No, the IRS won't get the 2024 Form 1099-R until 2025, therefore our can choose to wait until your get the form. If you choose to wait for the 2024 Form 1099-R then you would still file your 2023 return by the due date, just without it. Once you receive the 2024 Form 1099-R in 2025 you would need to amend your 2023 return.

Generally, it is just easier to enter the2024 Form 1099-R with code P and J when you file your 2023 return. Then you don't have to amend your 2023 return.

Re: Roth IRA Excess Contribution

saverhinos — Tue, 19 Mar 2024 15:38:25 GMT

Really appreciate the help. The thing I am concerned about is, if I generate a 1099-r and file it with my 2023 return, I would have to ignore the 2024 1099-r that I get in 2025. Won’t the IRS question my 2024 return because it is missing the 2099-r

Re: Roth IRA Excess Contribution

DanaB27 — Tue, 19 Mar 2024 17:01:07 GMT

No, because the code P in box 7 on a 2024 Form 1099-R tells the IRS that it is taxable in 2023.

Re: Roth IRA Excess Contribution

saverhinos — Tue, 19 Mar 2024 17:12:10 GMT

Thank you very much for your help , very much appreciated

Re: Roth IRA Excess Contribution

1Dowrite — Thu, 21 Mar 2024 04:01:14 GMT

@DanaB27

My excess Roth contribution situation is the same. Per your instructions for populating 1099-R, box 7 (step 8 in your instructions) enter codes J and P. I understand the reason for code P (excess contribution occurred in 2023 and withdrawal of excess will occur in 2024), buy why code J? Isn't code J for IRA owner's under 59 1/2? If so, code J would not apply in my case.

Re: Roth IRA Excess Contribution

saverhinos — Thu, 21 Mar 2024 04:58:57 GMT

So if over 59 1/2 what code would you use instead of J.

Re: Roth IRA Excess Contribution

1Dowrite — Thu, 21 Mar 2024 06:43:01 GMT

After reviewing the Guide to Distribution Codes Table at https://www.irs.gov/instructions/i1099r#en_US_2024_publink[phone number removed], based on their cross-referencing of acceptable combinations and on the great info in this thread, I am going with codes J & P 🙂

Re: Roth IRA Excess Contribution

saverhinos — Thu, 21 Mar 2024 16:21:52 GMT

Spoke to a CPA. They said if you remove excessive Roth IRA made in 2023 in 2024 before filing your 2023 Income tax and you are over 59 1/2. You should use code 8 !!!

On form 1099-r

Re: Roth IRA Excess Contribution

saverhinos — Thu, 21 Mar 2024 16:23:30 GMT

Spoke to a CPA. They said if you remove excessive Roth IRA made in 2023 in 2024 before filing your 2023 Income tax and you are over 59 1/2. You should use code 8 !!!

On 1099-r.

Re: Roth IRA Excess Contribution

DanaB27 — Sun, 31 Mar 2024 11:17:31 GMT

If you made the excess Roth IRA contribution in 2023 for 2023 and then withdrew in 2023 then you will have code 8 and J on your 2023 Form 1099-R, and it will have to be reported on your 2023 tax return.

If you made the excess Roth IRA contribution in 2024 for 2023 and then withdrew in 2024 then you will have code 8 and J on your 2024 Form 1099-R, and it will have to be reported on your 2024 tax return (I recommend checking with your financial institution if they follow this).

If you made the excess Roth IRA contribution in 2023 for 2023 and then withdrew in 2024 then you will have code P and J on your 2024 Form 1099-R, and it will have to be reported on your 2023 tax return.

“However, for the distribution of excess Roth IRA contributions, report the gross distribution in box 1 and only the earnings in box 2a. Enter Code J and Code 8 or P in box 7"(Form 1099-R instructions).

@saverhinos

Re: Roth IRA Excess Contribution

saverhinos — Fri, 22 Mar 2024 02:36:27 GMT

Thanks for the info. One last thing. With a withdrawal of an excessive Roth IRA That has a gain is the IRA/SEP/SIMPLE Box checked. Thank you

Re: Roth IRA Excess Contribution

ThomasM125 — Fri, 22 Mar 2024 13:57:02 GMT

You would check the IRA/SEP/SIMPLE box since the distribution is not associated with a company retirement plan, such as a 401-K plan.

Re: Roth IRA Excess Contribution

saverhinos — Fri, 22 Mar 2024 14:15:51 GMT

Thanks for the info. I was under the impression that the box should not be checked according to the IRS

Do I have that correct

Roth IRAs.

For distributions from a Roth IRA, report the gross distribution in box 1 but generally leave box 2a blank. Check the “Taxable amount not determined” box in box 2b. Enter Code J, Q, or T, as appropriate, in box 7. Do not use any other codes with Code Q or Code T. You may enter Code 8 or P with Code J. For the withdrawal of excess contributions, see Roth IRA under Box 2a. Taxable amount, later. It is not necessary to mark the IRA/SEP/SIMPLE checkbox.

Re: Roth IRA Excess Contribution

MRivero — Fri, 22 Mar 2024 21:09:12 GMT

I think you're right and a penalty will be calculated if you're under 59 1/2.

Re: Roth IRA Excess Contribution

DanaB27 — Sat, 23 Mar 2024 16:35:15 GMT

No, there is no longer a 10% early withdrawal penalty for withdrawal of excess contributions (Pub 590-B).

Correct, you do not mark the IRA/SEP/SIMPLE checkbox for the Roth IRA.

@MRivero

Re: Roth IRA Excess Contribution

MRivero — Sat, 23 Mar 2024 18:51:22 GMT

Hi. If I enter Code J with Code P for the distribution of excess earnings before April 15, TurboTax calculates an additional tax of 10% on the excess earnings. Is that right? Thanks.

Re: Roth IRA Excess Contribution

AAV — Sun, 24 Mar 2024 03:18:51 GMT

DanaB27,

I too have a situation where I made a full Roth IRA contribution of $7,500 in Sep. 2023 which will be withdrawn with gains (but no fed or state withholdings) in March 2024 due to my income level for 2023 being over max.

I would just like to verify that I correctly understand the steps to handle this on my 2023 turbotax returns:

1.) Enter my Roth contributions of $7,500 in the section asking whether I made any contributions in 2023.

2.) Enter $7,500 in the section where I'm informed of the penalty in the box titled "Contribution withdrawn before the date of your return"

3.) Create a form 1099-R as per the 12 step list you provided on my 2023 return in order to report the withdrawal and taxable gain.

And then once I receive the actual 2024 1099-R in 2025, I completely disregard it, not having to enter it into my 2024 filing at all.

Is this all correct?

Been losing sleep over this one and appreciate all your great advice you've provided in this thread!