Help- I mess up on withdrawal excess Roth IRA for 2022

[cordycep]

I'd found out I have excess contribution $7000 ROTH IRA for 2022,.  I have a net loss and I did not asked the custodian to do the calculation, instead I did my own calculation  and withdraw excess  contribution  in the amount  of$3500 , then I contribute that excess toward 2023 Roth IRA.    

I found out later I miscacluated the 2022 excess withdraw amount, I need to withdraw an additional $1000 but custodian now refuse for this year.     So now I just found out I may have to pay the excess tax for the $3500 that I just contributed for 2023.       

Can I asked the custodian to takeout  the excess $3500 contribution for 2023 before april 18? 

Also what does the filed substitution for 1099-R mean? does that mean it is an estimate 1099-R since I have not recieved one until next year?  

thank you

[DanaB27 · Accepted solution]

To confirm this is a regular Roth IRA? Why is the custodian refusing to withdraw an excess contribution for 2022? You have until the extended due date (October 16th, 2023) to withdraw the 2022 excess contribution plus earnings to avoid the 6% penalty on the 2022 excess contribution (Pub 590-A).

For the 2023 excess contribution you have until the extended due date of the 2023 tax return to remove it plus earnings to avoid the 6% penalty.

No, you don't use a substitute Form 1099-R, you just use a regular Form 1099-R. You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions for 2022 and earnings. But you should check with your custodian if you didn't fill out the correct form to request the withdrawal of excess contribution plus earnings. You might have a different code.

A 2022 Form 1099-R with codes P and J 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" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

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

[cordycep]

HI :

      I appreciate taking the time to answer my questions.   Yes, it is Roth IRA.   I made wrong calculation on 1st withdrawal and requested Custodian for 2nd withdrawal of excess contribution for 2022 , they said only allow one time for 2022.     The 2023 Roth contribution is carryover came from the 2022 excess contribution withdrawal, I read that it is 6% tax  since it is not a withdrawal. 

thank you.

[DanaB27]

You might want to check with someone else in the bank and ask for an explanation. You have until October 16th, 2023 to withdraw the 2022 excess contribution plus earnings. It shouldn't matter that you requested before to make the withdrawal of some of the 2022 excess contribution plus earnings as long as you have any contribution left for 2022 you should be able to withdraw it with the earnings.

The contribution for 2023 is a new contribution for 2023 since you withdrew money and then contributed it again for 2023 (this contribution will be entered on your 2023 tax return). 

On the 2022 tax return, you will enter on the penalty screen the contribution amount (ignore earnings and losses here) that you removed by the extended due date (during the IRA contribution interview). You won't pay the 6% penalty on the contribution amount removed.

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 “Roth IRA”
6. Enter your Roth IRA contribution for 2022
7. Continue until the penalty screen and enter the excess contribution amount withdrawn.

[cordycep]

hi :

       How to provide explanation for early withdrawal for 1099-R  ?

I withdrew $4715 from Roth but had a loss.

$2285 was adjused loss from the $7000 excess contribution

$4715 withdrawal is the excess adjustment after the $2285 loss.

thank you

[DanaB27 · Accepted solution]

Yes, for the explanation statement, you will enter that you withdrew the 2022 excess contribution of $7,000 with a loss of $2,285.

If you had a $2,285 loss on your $7,000 contribution then you are considered to have withdrawn the full excess contribution of $7,000. You will enter $7,000 as withdrawn by the due date on the penalty screen in the IRA contribution interview.

To create a Form 1099-R in your 2022 return please follow the steps below (for a loss):

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 minus loss)
7. Box 2a enter $0
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.