How to File Excess Roth IRA Contribution

[riri789]

I learnt that I made an excess contribution to my roth ira of 6500 for 2023. In order to amend this, I used vanguard's excess contribution form to remove both the contribution and any earnings that i made on the contribution. Additionally, I withheld federal income taxes at a rate of 24% for the earnings. How do I file this scenario on my 2023 tax forms in turbo tax such that it takes into account that 24% has already been withheld for federal income tax? Additionally, would the only tax that now has to be paid be the extra 10% for withdrawing the amount early ?

[DanaB27]

The withheld taxes cannot be applied to 2023 since they were withheld in 2024, they will have to be applied to 2024. Therefore, you will have to enter the 2024 1099-R also on your 2024 tax return to get the taxes applied to 2024. TurboTax will ignore the income for 2024 because of code P.

Only the earnings will be taxable and have to be reported on your 2023 tax return.

"The income on the corrective distribution of excess contributions made on or after, December 29, 2022, is no longer subject to the 10% additional tax on early distributions" (Pub 590-B).

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:

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 2023?"
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 2024 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 "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.

You do not need to enter the Roth IRA contribution in the IRA contribution section since you withdrew it by the due date.