Starting in 2020 my salary exceeded the limit where I could contribute to a Roth IRA, but I wasn't aware there was a limit, so I kept contributing the max yearly. In December when I noticed the problem, I was able to re-characterize my 2022 contribution, but my 2020 and 2021 contributions will be much more challenging. In December I asked my brokerage (Vanguard) to remove the excess $12,000 from my Roth. This year I have a 1099-R for the removed $12,000 with a distribution code J.
I realize I will need to pay a 6% penalty on the excess per year (so here, 6000x6% + 12000*6%x2 = $1,800). What I'm unclear on is how to enter this in turbotax. Will it be necessary to file three form 5329s for 2020, 2021, and 2022, or can I calculate the penalty for all three years and file on one 5329 for 2022? Could I do this independently from filing this year's full return? And will I also have to amend my 2020 and 2021 returns?
In addition, I am unclear if I will need to pay an additional 10% penalty on this $12k distribution. I thought this wouldn't be necessary since it is correcting an earlier error, but if this is wrong, how do I enter the 10% tax in turbotax too or otherwise pay the 10% tax manually? And would the 10% apply to the principal or just to the gain?
Yes, you will have to pay the 6% penalty for the 2020 and 2021 excess. Yes, you will need to file a 2020 and 2021 amended return.
No, you don't have to pay the 10% early withdrawal penalty on the Roth distribution since you didn't withdraw any earnings. make sure you enter your net contributions in the follow-up questions.
On your 2020 return, all you need to do is enter the Roth contribution and TurboTax will automatically calculate the 6% penalty on Form 5329.
On your 2021 return, you will have to pay the 6% penalty for the 2020 and 2021 excess contribution:
Please see How do I amend my federal tax return for a prior year?
On your 2022 tax return, you will enter your From 1099-R with code J to show that you removed the excess: