How To Carry & Apply Roth IRA Excess Distribution?

[mye4590]

Hi there,

Normally every year I max out a Roth IRA and in 2022 I contributed the limit of $6,000. Also however in 2022 my income rose quite a bit and put me over the $144,000 AGI limit, so effectively I have an excess contribution of $6,000 for 2021.

I saw the couple of ways to handle this, either re-characterization or doing a withdrawal. I wasn't really fond of the former and the latter I'd essentially have to report as income which would be a pretty decent tax.

But I realize since this is a one-off of my income fluctuating, I can carry over this excess and apply it my 2023 Roth IRA contributions. It would be much better to take the $360 hit ($6,000 * 6%) than to report a withdrawal as income, since I will be able to fully max out my Roth IRA in 2023 again.

This all makes sense to me to this point but my question is really for my 2023 return I have to file next year. How is that reported on the tax return & how do I prove that excess contribution is for 2023? The instructions in TurboTax don't make it so clear if that is the route you want to take (paying the tax and carrying it into the next year), while they have some detailed instructions for either re-characterization or withdrawal.

[DanaB27 · Accepted solution]

I assume you meant to say that you made an excess contribution for 2022 (not 2021). Please follow these steps on your 2023 return to apply the 2022 excess to 2023:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2022 (if it wasn't carried over).
6. On the "How Much Excess to 2023?" screen enter how much you want to apply to 2023.

Please see What happens if I made an excess Roth IRA contribution for additional information.

[dmertz]

Be aware that only the investment gains attributable to the $6,000 excess contribution would be taxable (and subject to an early-distribution penalty) if you obtain a return of contribution, but you are correct that if the percentage of investment gains in the Roth IRA account after making the contribution was substantial it would make sense to keep the excess contribution for 2022, pay the $360 penalty with your 2022 tax return, and apply the excess as part of your 2023 contribution.  (The contribution limit goes up to $6,500 for 2023.)

[mye4590]

This was quite helpful! I overlooked some of the research about what is/isn't taxable from the excess distribution. For whatever reason I thought both the contributed excess of $6,000 and the gains of that were taxed. But since that is not the case and only the gains are taxed, it's going to make more sense to do a withdrawal. Thanks