How to fix Excess Roth IRA Contribution in 2020?

[pidgessn]

Hi,

I'm 32 years old. I made excess Roth IRA contribution in tax year 2020. I didn't realize that the capital gains from trading pushed my income over the limit for full $6k IRA contribution. I filed my tax return for 2020 without realizing the excess Roth IRA contribution. I didn't get the tax return credit for 2020. I filed the return for tax year 2021 and got the tax return credit for 2021. I only realized and removed the 2020 excess contribution  in April 2022. I got form 1099 R 2022 with code 'PJ' gross distribution $2149 and taxable income $647. There is no federal or state withholding in 1099R. FF Now, I'm in the process of filing my 2022 return. What steps should I take? What forms or amended returns should I file? I guess I didn't get my 2020 tax return because I made excess Roth IRA contribution. My tax transcripts for 2020 shows a negative balance (credit refund to be issued). I'm hoping I will get my 2020 tax refund when I fix this.

Adjusted Gross income for 2020 is $127,411. I filed as Married filing Separately in 2020. My spouse and I lived separately for whole year of 2020. I submitted a request to Schwab to remove $1500 out of my $6000 contribution made in 2020 so that I'm well within my Roth IRA contribution limit. Yes, the remaining $4500 was left as Roth contribution for year 2020. Schwab journaled some stocks from my Roth IRA account to my personal account and sent me 1099 R 2022 - Gross distribution is $2,149 and taxable income is $647

[pidgessn]

@dmertz pls help

[pidgessn]

Tax experts pls advise

[fanfare]

"over the limit for full $6k IRA contribution. "

where you partially eligible?

Did you leave in the eligible part.?  What was the ineligible amount? TurboTax (and IRS) will want to know.

@pidgessn 

[pidgessn]

@fanfare  Adjusted Gross income for 2020 is $127,411. I filed as Married filing Separately in 2020. My spouse and I lived separately for whole year of 2020. I submitted a request to Schwab to remove $1500 out of my $6000 contribution made in 2020 so that I'm well within my Roth IRA contribution limit. Yes, the remaining $4500 was left as Roth contribution for year 2020. Schwab journaled some stocks from my Roth IRA account to my personal account and sent me 1099 R 2022 - Gross distribution is $2,149 and taxable income is $647

[pidgessn]

@DanaB27 @AnnetteB6 Pls advise

[fanfare]

so that I'm well within my Roth IRA contribution limit."

OK the $647 goes on your 2020 tax return (the year for which you made the contribution), raising your MAGI, so you need a withdrawal cushion to compensate.

That's all you have to do for you 2020 Tax return.

You have a penalty of 6% of <disallowed part> on your 2021 tax return because you left the excess of <disallowed part> remaining through the year.

you have a resolution of the excess on your 2022 tax return by way of a completed distribution request of $1,500. assuming your cushion was adequate.

@pidgessn 

[dmertz]

I suspect that the other replies here have gone off into the weeds and are most likely incorrect for the most part.

The distribution reported with the code PJ 2022 Form 1099-R does not itself correct a 2020 excess contribution.  The code PJ 2022 Form 1099-R represents a return of a Roth IRA contribution made for 2021 because the deadline for obtaining a return of the 2020 contribution before the due date of your 2020 tax return was October 15, 2021, while you obtained a distribution in 2022.  The only way that this Form 1099-R makes any sense is if you had some amount of a 2021 Roth IRA contribution returned to allow your 2020 excess to be applied as part of your 2021 Roth IRA contribution.

Were you eligible to contribute to a Roth IRA for 2021?  If so:

1. Did you contribute for 2021?
2. How much were you eligible to contribute for 2021?
3. How much did you actually contribute (ignoring any return of contribution) for 2021?

[pidgessn]

@fanfare Unfortunately, i don't have the cushion to compensate if I include $647 to my 2020 MAGI. Should I submit another request to remove excess again (with cushion this time)?

What should I do for my 2022 tax return? Should i report 1099 R in my 2022 tax return? or should i not consider the 1099 R in my 2022 return and amend my 2020 return once I get another 1099 R for removing excess distribution in 2023.

When should I file form 5239?

[DanaB27]

To confirm, you made the excess contribution for 2020 and removed it in 2022? You should have requested a regular distribution (without earnings) since it was after the extended due date of the 2020 return and gotten a 2022 Form 1099-R with code J. You might want to double-check with your institute. 

Right now your 2022 Form 1099-R with codes P and J would indicate that you have to enter it on your 2021 tax return and that you remove a contribution for 2021.

Were you able to make Roth contributions for 2021? Did you make Roth contributions? If you were able to make Roth contributions, then you could amend your 2021 tax return and apply this excess to your 2021 contribution and reduce/eliminate the 6% penalty on your 2021 tax return as dmertz mentions:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter your 2021 Roth contributions
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 of $1,502 (if it wasn't carried over).
7. On the Penalty screen enter that you removed $1,502 by the due date

You will still have to pay the 6% penalty on your 2020 tax return On Form 5320. If you entered your Roth contribution TurboTax should have automatically calculated it.

@pidgessn 

[pidgessn]

@DanaB27 @dmertz @fanfare Yes, I contributed full $6000 to Roth IRA in 2021. I was eligible to contribute 6k in 2021. I couldn't apply the excess contribution from 2020 to 2021 as I made the Roth IRA contribution for 2020 in Sep 2020. My plan admin said I can apply my 2020 contribution to 2021 only if it is made between Jan to Mar'21

[pidgessn]

I submitted a 'Request a recharacterization or remove an excess IRA contribution' form to Schwab where it said 'amount of contribution attributable to the excess' is $1500, 'Contribution date' is '09/22/2020' and 'tax year of contribution' is 2020

[pidgessn]

I submitted the form to Schwab on Mar 28,2022 and distribution happened on Apr 14,2022.

[pidgessn]

@DanaB27  Yes, I made excess Roth IRA contribution in 2020 and removed it in 2022

[fanfare]

it sounds like they applied your request to 2021 contribution, rather than the 2020 contribution, since according to dmertz it's too late to do 2020,  if so, that would give you some allowed 2021 contribution still available to offset some of 2020.