Back Door Roth Excee contribution - how to withdraw?

[nanlii]

I made an extra $14 contribution to my Backdoor Roth. My Traditional IRA 1099R is showing $6014 for contribution. So Turbotax showed me the "You have a penalty" page and ask me to withdraw $14 from my traditional IRA account to avoid the 6% penalty tax each year.

However, all of my money has already rollover to the Roth IRA from Traditional IRA, I don't have $14 in my Traditional IRA account.

Question: how should I withdraw $14 in this situation?

1) Do I need to withdraw from Traditional IRA account? If so, do I need to recharacterize $14 from my Roth IRA to Traditional IRA (basically rollover $14 back to Traditional IRA) and then withdraw the $14 from the Traditional IRA account?

2) Can I withdraw from the RothIRA account directly? transfer $14 from RothIRA to my bank account.

Thank you!

[DanaB27]

To confirm you contributed $6,000 to the traditional IRA but you converted $6,014 because you had a $14 gain in the account.

If that is the case, then you don’t have to withdraw the $14. Please don’t enter the conversion amount from Form 1099-R as a contribution. Please review the backdoor Roth steps below.

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

If you indeed made an excess contribution then you would have to withdraw the $14 from the Roth IRA (you cannot recharacterize a conversion). You will have to request the withdrawal of excess contribution plus earnings by the due date to avoid the 6% penalty. The earning will be taxable on your 2022 tax return.

[nanlii]

thank you!  I think i actually contributed $6014 to the IRA so the $14 isn't gain.  should I continue with withdraw from the Roth account? And how do I determine the gains on the $14

[DanaB27]

Yes, you will request the withdrawal of excess contribution plus earnings with your financial institute from the Roth IRA. They should be able to calculate the earnings on the excess. On the penalty screen during the contribution interview, you will enter the $14 excess contribution as withdrawn by the due date.

The earnings on the excess contribution will be taxable on your 2022 tax return.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R 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 click 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" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.