1099-R for mistake early distribution from Roth

[rammage]

In 2023 I mistakenly though that I had exceeded my Roth contribution limit when converting my non-deductible TIRA to a Roth (I know now that no such limit exists).  I executed a removal of excess contributions for both my and my wife's accounts.  The amounts distributed were small...$7.14 and 9.01, respectively with taxable gains $0.60 and $1.43, respectively.

Knowing that I owed taxes on the gains, I added $3.00 as "other income" on Schedule 1 with the explanation that it was for earnings on the "excess contribution", which is wrong.  I should have worded it to say it was for earnings on the early distribution.  I received 2 1099-Rs for the distribution dated 2024 with the codes J and P.

Federal taxes on the gains were withheld on the 1099s so the $3 I paid I think should cover any penalties.

Now that I have the 1099-Rs, do I need to amend my 2023 return documenting that taxes were paid and include a note that the P code was a mistake and that there was no excess contribution but only an early distribution?

[DanaB27 · Accepted solution]

If you had taxes withheld then you will need to enter the 2024 Form 1099-R with codes J and P also on your 2024 return to get the taxes applied to 2024. The 2024 code P will not do anything to your income to the 2024 tax return income but the withholdings will be applied to 2024.

The correct way to the report the earnings on your 2023 return would have been to enter a Form 1099-R and then TurboTax would have entered the earnings on line 4b of Form 1040, fill out Form 5329 part I to include exception code 21 Corrective distributions of the income on excess contributions distributed before the due date of the tax return (including extensions) on line 2, and create an explanation statement.

Amending your 2023 return would not change the tax due, therefore, it isn't necessary to amend your 2023 return. Just make sure you keep everything for your records.

[rammage]

Turbotax is telling me that with Code P I need to amend my 2023 taxes.  Do I enter the form WITHOUT code P or just ignore the recommendation?

[DanaB27]

You will enter the code P and J when you enter the 2024 Form 1099-R on your 2024 return, but you can ignore the recommendation since you include the earnings in your 2023 taxable income. 

You only enter this in your 2024 return to get the withheld taxes from box 4 applied to your 2024 return. TurboTax will know to ignore the the income for 2024 because of the code P but will apply the withheld taxes on line 25b of Form 1040.

[rammage]

Since I improperly used Schedule 1 to report earning on the distribution do I need to attach a note to my 2024 return explaining what I did?

[DanaB27 · Accepted solution]

No, you do not need to attach a note to your 2024 return.