Help to Enter Removal of Excess Contribution to IRA in TurboTax

[Ravi Ammamuthu]

Hello There,  I live in CA and have time until Oct 15th to file my 2022 tax return. 

For the tax year 2022, I made a $6000 contribution to both Traditional and Roth IRA separately. Later, I found that this was a combined limit of only $6000. Hence, I called fidelity in 2023 before April 15th and they returned the excess Traditional IRA contribution. But they told me that they would send 1099-R for the return only next year. For the tax year, they have sent form 5498 both for the Traditional and Roth IRA.

The question I have is, how do I enter the removal of the excess contribution for 2022 now when I file the tax. Now that Fidelity notified IRA on the contribution to both Traditional and Roth IRA, should I enter both the contributions in Turbo tax or only RothIRA since the traditional IRA amount has been withdrawn? Then how do I enter the return money in next year's tax filing?

Thanks in advance for your help!

[TeriH]

Great question.  

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 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 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 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 2022?"
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 2023 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 "Another reason" since you are over 59 1/2 

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

Best wishes,
Teri H

[Ravi Ammamuthu]

Thank you so much for such a fast response. I was able to follow all of it except the reference of age over 59 1/2  from your response.

"Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" since you are over 59 1/2 "

I am not over 59 1/2. Hence the confusion. Is there any change for those under 59 1/2?

Regards

[TeriH]

Glad you got through the instructions that far.  Curious that it's asking re being 59 1/2 if you are not.  That question is only relevant for avoiding a penalty.  If you are under 59 1/2 there will be a penalty.  And it will be automatically calculated at 10% and added to your 1040 on line 23.

Hope this answers your question.

Best wishes,
teri

[Ravi Ammamuthu]

Hi There,

I did not go that far in turbotax yet. I was referring to the age from your response only and not from the tool. So not sure why your response had a reference to the age. Anyway, per many google articles, as long as the amount has been withdrawn before 4/15 ( which we did), there won't be any exercise or any penalty irrespective of age. So I am confused on your response on this aspect

Regards

[TeriH]

Great question re EV credits, and great to ask them ahead of time.  There are a lot of factors to consider and one of them is your income.  

Some other qualifications:

• Used car must be plug-in electric or fuel cell with at least 7 kilowatt hours of battery capacity.
• Only qualifies for the first transfer of a vehicle.
• Purchase price of car must be $25,000 or less.
• Car model must be at least two years old.
• Vehicle must weigh less than 14,000 pounds.
• Credit can only be claimed once every three years. 

I’m including references to two easy to read articles that will talk through the various items to consider.

https://www.nerdwallet.com/article/taxes/ev-tax-credit-electric-vehicle-tax-credit

https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-credits-deductions/electric-car-tax-...

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Best,
teri

The tax system is a pay as you go.  The quarterly payments are due as follows. 

Payment Period	Due Date
January 1 – March 31	April 15
April 1 – May 31	June 15
June 1 – August 31	September 15
September 1 – December 31	January 15* of the following year. *See January payment in Chapter 2 of Publication 505, Tax Withholding and Estimated Tax

So, if you had earning in August, you’d pay an estimate by September 15^th.  Then the fourth quarter payment will be trued up by January 15^th.

Best,
Teri H

Yes, there are two options to avoid the penalty and you have meet the first.  And since you've met that requirement, the 59 1/2 comment is unnecessary.

If you wish to avoid the penalty, you have two options (both must be completed before your tax filing deadline):

• Withdraw the excess contribution plus earnings: Keep in mind that the earnings are included in your taxable income for the year the excess contribution was made, so you’ll still receive a 1099-R to report these earnings on your tax return
• Recharacterize the Roth IRA contribution as a traditional IRA contribution: Contact your plan administrator for guidance on this process. After you’ve made your recharacterization, see these instructions for how to record this process in TurboTax

Hope this provides further clarity.

Best wishes,

Teri

[Ravi Ammamuthu]

I think you updated a wrong post?

[TeriH]

thanks for letting me know.