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
After thinking about it some more, I'm sure that your best approach would be to treat the distribution as a regular (code-J) distribution as I described above. Doing so will produce a lower tax liability over 2021 and 2022 than would the other approach because the excess contribution penalty for 2021 will almost certainly be less that the income tax and early-distribution penalty that you would pay on the $647 (I'm not sure why this is not $2,149 - $1,500 = $649, but no matter) that would otherwise have to be included in taxable income. You'll need to file 2020 and 2021 Forms 5329 to report the excess contribution and calculate the penalty for both years, then you'll report the regular distribution on your 2022 tax return by submitting the substitute code-J Form 1099-R (Form 4852) that I mentioned. When the regular distribution is included on your 2022 tax return, the the excess that carries forward from 2021 will be eliminated on your 2022 Form 5329 by the regular distribution.
"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.
@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
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.
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:
@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?
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:
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.
@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
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
I submitted the form to Schwab on Mar 28,2022 and distribution happened on Apr 14,2022.
@DanaB27 Yes, I made excess Roth IRA contribution in 2020 and removed it in 2022
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.
Yes, Schwab shouldn't have processed the request like that since it was after the extended due date of the 2020 return.
Applying the excess contribution as a contribution in the following year is a process done on the tax return and not with your financial institution. On your 2021 amended tax return, you will report Form 2022 1099-R with codes P and J. You also will follow these steps to apply the 2020 excess to 2021 to avoid paying the 6% penalty for 2021 and indicate you remove the excess contribution:
@DanaB27 Based on your comments, I should only file amended tax return for 2021 and move excess Roth IRA from 2020 to 2021? Can you also provide your inputs on filing Form 5329 and for which years?
Yes, you have to file a 2021 amended return to report the 2022 Form 1099-R with codes P and J and apply the excess to 2021 with the steps above. TurboTax will automatically fill out Form 5328 part IV for the excess contribution part and part I for the 10% early withdrawal penalty on the earnings, if you are over 59 ½ you will get an exception.
It depends, if your 2020 Form 5329 line 25 shows a penalty for the 2020 excess contribution then you do not need to amend your 2020 return. If you don’t have the 6% penalty on your 2020 return, then you will have to amend your 2020 return. All you have to do is enter the Roth contribution and TurboTax will fill out Form 5329.
SUGGESTION:
get 2020,2021 and 2022 Form 5329 from IRS.gov and fill them out by hand.
In order to do that you have to know what you did in and for all those years,
they are all interrelated.
after you are satisfied with that exercise , you can try to amend those years.
the amount of distribution is the amount you requested , not the amount actually returned plus/minus earnings.
7. On the "How Much Excess to 2021?" screen enter $1,500 to apply to 2021.
@DanaB27 Applying excess from 2020 to 2021 is done on Form 5329? or some other form? which line?
@pidgessn wrote: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
They should have rejected such a request made in 2022. Because they should have rejected the request, it's not clear if they calculated the Net Income Attributable based on the 9/22/2020 contribution date you indicated (which was an inappropriate calculation) or if they processed a return of a portion of your 2021 Roth IRA contribution based on the date of your 2021 Roth IRA contribution.
The problem is how to explain all of this to the IRS. You could treat the distribution as not applying to your 2021 Roth IRA contribution and treat the distribution as a regular distribution in 2022 by filing a substitute Form 1099-R with $2,149 in box 1, a blank box 2a, box 2b Taxable amount not determined marked and code J in box 7. Doing so would mean that you have an excess contribution for 2021 in addition to the excess contribution for 2020. Otherwise you would have to figure out what the Net Income Attributable would have been on a return of some amount of your 2021 Roth IRA contribution such that the distribution would have equaled $2,149. You would then be able to apply some or all of the $1,500 excess contribution from 2020 as part of your 2021 contribution, reducing or eliminating the excess contribution penalty for 2021. Either way, if you did not include the excess $1,500 2020 contribution on your 2021 Form 5329, you'll need to amend your 2021 tax return to at least report this excess and possibly also report the return of part of your 2021 Roth IRA contribution if you go that route.
@dmertz ok. I need to file amended return for 2021 and form 5329 for 2020 & 2021. is this right?
Do I need amend my return for 2020? Should i do any reporting on this to my 2022 return?
After thinking about it some more, I'm sure that your best approach would be to treat the distribution as a regular (code-J) distribution as I described above. Doing so will produce a lower tax liability over 2021 and 2022 than would the other approach because the excess contribution penalty for 2021 will almost certainly be less that the income tax and early-distribution penalty that you would pay on the $647 (I'm not sure why this is not $2,149 - $1,500 = $649, but no matter) that would otherwise have to be included in taxable income. You'll need to file 2020 and 2021 Forms 5329 to report the excess contribution and calculate the penalty for both years, then you'll report the regular distribution on your 2022 tax return by submitting the substitute code-J Form 1099-R (Form 4852) that I mentioned. When the regular distribution is included on your 2022 tax return, the the excess that carries forward from 2021 will be eliminated on your 2022 Form 5329 by the regular distribution.
Thank you @dmertz . So, there is no need to amend 2020 & 2021 tax returns. I need to file form 5329 for 2020 & 2021. I need to report the regular distribution on my 2022 tax return by submitting the substitute code-J Form 1099-R (Form 4852). That's it?