excess roth contribution

Forum|Forum|3 years ago
March 18, 2023
1 reply
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I have seen questions similar to this, but I have additional questions. I made an excess Roth contribution for 2020 in March 2021 based on my 2020 stated W2 earnings. I didn't catch the excess error until I was filing my 2021 return. Some of my earnings were from deferred income and were not so designation on my 2020 return. (I just figured this out). I could not determine how to amend my 2020 return (couldn't determine how to enter info in turbotax) so I filed my 2021 taxes, completed form 5329 and paid the 6% penalty for 2021. I removed the excess contribution in March 2022 prior to filing my 2021 taxes. I just received a 1099R for 2022 showing the removal of the excess contribution and the earnings. If I report this form for on my 2022 taxes, I turbotax shows the 6% penatly, but it doesn't look like turbotax in adding taxes for the earnings.

My current solution appears to be......file an amended 2020 return modifying my 2020 earning to subtract the "differed income" This creates a form 5329 for 2020 and shows the 6% penalty. Then amend the 2021 return utilizing the form 5329 from 2021. The question then becomes how do I utilize the 1099R for 2022. Is that info entered on the 2021 amended return? Do I then disregard the form on my 2022 taxes?

DanaB27

Level 15

Yes, you will have to pay the 6% penalty for 2020 and for 2021 because you didn't remove the 2020 excess contribution to the Roth IRA until 2022. Since it was after the extended due date of the 2020 tax return you should have requested a regular distribution (without earnings) and received Form 1099-R with code J. Entering a Form 1099-R with code J on your 2022 tax return would remove the excess carried over from prior years on Form 5329.

It seems you got Form 1099-R with codes P and J? This would indicate that you got a contribution for 2021 plus earnings returned in 2022. And this would belong on your 2021 return. You might want to check with your financial institution if they will correct the form. Or you can file a substitute Form 1099-R with code J only and enter it on your 2022 tax return.

To file a substitute Form 1099-R:

Login to your TurboTax Account
Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Select "Change how I enter my form" on the "Let's import your tax info" screen
Select "Type it myself"
Fill out Form 1099-R and use code J in box 7 only
Continue through the questions until the "Do any of these situations apply to you?" screen select "I need to file a substitute 1099-R"
Continue through the question
Click "Continue" on the "Review your 1099-R info" screen
Answer all the questions and make sure you enter the net contributions prior to 2022 (include the 2020 excess contribution) on the "Enter Prior Year Roth IRA Contributions" screen
Answer the remaining question.

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chasfiiiAuthor

Level 2

Am I correct that I need to start by amending my 2020 return? It took me awhile to figure our why turbotax kept saying I was eligible to contribute. Turns out the W2 for deferred income was being counted as "earned income." The only way I see to fix this is to reclassify the deferred income. That generates a form 5329 for 2020. I can then amend my 2021 return to correct the 2021 form 5329.

chasfiiiAuthor

Level 2

Yes, you will need to amend your 2020 and 2021 tax returns to add the 6% penalty. Please see How do I amend my federal tax return for a prior year?

To confirm, you didn't have any taxable compensation in 2020 and that is why you couldn't make the IRA contribution.

I have a few more questions. Here is where I stand. I amended my 2020 and my 2021 returns to reflect the actual excess Roth contribution and paid the 6% additional tax for both years. . The actual excess was $4000. I had $1000 in qualified earnings in 2020 and I made a $5000 contribution to my Roth IRA. In 2022 I realized I had included non qualified income in my contribution and I thought the amount of the excess contribution was $5000 so in early 2022 I took a $5000 distribution (excess contribution). The next month, I calculated the earnings on the excess contribution and took a $200 distribution. These amounts were included on my 2022 1099-R with $5200 (gross distribution) in box 1 and $200 (taxable amount) in box 2a. The distribution codes are J &P. If I file a substitute 1099R using only the code J, do I enter amounts in boxes 1 and 2a? Box 1 being the total distribution and 2a being the amount of the earnings?