Excess Contribution For Roth IRA removal and reporting

[sridharm]

Good Morning. Here is sequence of events in our case.

In 2019 I made $1,080 of excess contributions to a ROTH IRA .
In 2019 my wife made $1,080 of excess contributions to a ROTH IRA.
In 2020 I made $840 of excess contributions to a ROTH IRA.
In 2020 my wife made $720 of excess contributions to a ROTH IRA.
In 2021 I made $2100 of excess contributions to a ROTH IRA.
In 2021 my wife made $2700 of excess contributions to a ROTH IRA.
In March 2022 we realized our mistakes.
Later in Aril 2022 before tax deadline I withdrew the $2,200 (slight more than original excess 2,100) excess contribution and earnings.
Later in Aril 2022 before tax deadline my wife withdrew the $2,800 (slight more than original excess 2,700) excess contribution and earnings.
paid 6% penalty on excess $2,160 2019 contributions by submitting Form 5329 amending 2019 taxes.
paid 6% penalty on excess $2,160 2019 contributions and excess $2,800 2020 contribution by submitting Form 5329 on 2020 taxes.
paid 6% penalty on excess $2,160 2019 contributions and excess $2,800 2020 contribution by submitting Form 5329 on 2021 taxes. We didn't do manual
any entry of 1099-R for removal of 2021 excess contribution on 2021 tax return.
Later in Dec 2022 I removed excess $1,080 2019 contributions and excess $840 2020 contribution.
Later in Dec 2022 my removed removed excess $1,080 2019 contributions and excess $720 2020 contribution.
I now received 1099-R for my account with codes J,P and Fed income tax withheld.
My wife now received 1099-R (2 in it) for her account one with codes 8,J and another with code J,P.
We both are <59.5 years old.

Now we are ready to file our 2022 taxes and probably needs to amend 2021 return as we didn't include 1099-R previously.

Here are my questions

Is the following is what needs to be done.

1. Amend 2021 tax return and include 1099-R and how I report 2021 Roth IRA excess contribution withdrawal.
2. File 2022 tax return and include 1099-R due to code 8,J on one and Fed tax with held for another. How I report the excess contribution
that is withdrawn for 2019, 2020 and to generate 5329 to zero out 6% penalties.

Am I missing anything. Could you please provide detail steps to address this in TurboTax.

Thank you for your support.

Sri

[sridharm]

Could one of the Employee Tax Expert please help and guide me on what the next steps I need to do in Turbotax.

Regards,

Sri

[DanaB27]

You both should have received a 2022 Form 1099-R with codes J and P for the return of excess contributions for 2021 and earnings (which belongs on your 2021 return) and a 2022 Form 1099-R with code J for the regular distribution of the 2020 and 2019 excess (which belongs on your 2022 tax return).

It seems your wife received the wrong Form 1099-R for the regular distribution because Form 1099-R with codes 8 and J indicates a return of a contribution for 2022 in 2022. Please contact the custodian to correct the form, it needs to be Form 1099-R with code J since these were excess 2019 and 2020 contributions.

1) You will have to amend your 2021 return to report Form 1099-R with codes J and P.

2) Your and your wife's Form 1099-R with code J will be entered on your 2022 tax return and will eliminate the 2019 and 2020 excess.

1.  Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter all your 1099-Rs
4. Click "Continue" on the "Review your 1099-R info" screen
5. Answer all the questions and make sure you enter the net contributions prior to 2022 (include the 2019 and 2020 excess in this amount) on the "Enter Prior Year Roth IRA Contributions" screen
6. Answer the remaining question.

If you can't get your wife's Form 1099-R with codes 8 and J  corrected to code J only then you will need to file a substitute Form 1099-R for her. 

@sridharm 

[sridharm]

Hi DanaB27

Need your help. After speaking Vanguard multiple times on discrepancy noticed in 1009-R for my wife here
is what they finally came up with explanation.

2022 Form 1099-R - First One

1 Gross distribution $239.97
2a Taxable amount $ 17.75
7 Distribution code(s) 8, J

For first one looks like while processing Roth Excess contribution ($2700) removal for year 2021 they noticed one part ($222.22) that was part of year 2021 was made
in 3rd January of 2022. Vanguard removed along with earnings ( $17.75 ).

2022 Form 1099-R - Second One

1 Gross distribution $4,751.78
2a Taxable amount $ 474.00
7 Distribution code(s) J, P

For second seems to include the following.

1. Removal of Roth IRA excess contribution ($720) for year 2020 unfortunately they removed earnings

    ($68.73) too.
2. Removal of Roth IRA excess contribution ($1080)for year 2019 unfortunately they removed earnings   

    ($218.88) too.
3. Removal of Roth IRA excess balance contribution ($2477.78) for year 2021 along with earnings ($186.39)

Given the above explanation from Vanguard how it changes my filing related to amended 2021 return and

2022 tax return which is not yet filed.

Could you please guide on how go about it in TurboTax. Thank you for your support.

Hopefully with your guidance I can proceed with appropriate filings and clear things once for all.

Regards,

Sri

[sridharm]

Hi DanaB27,

When you have a chance could you please look into my above request. How does it impact

on filing tax amendment for year 2021 and tax filing for year 2022.

Thank you for your support.

Regards,

Sri

[DanaB27]

Vanguard filed the wrong Form 1099-R information. They should have never included the 2019 and 2020 excess returned on Form 1099-R with codes P and J. They were returned after the due date and this should have been a regular distribution with code J only. 

In regards to Form 1099-R with codes 8 and J. Technically, since this was a contribution for 2021 it is deemed to have been made by the end of 2021 and therefore it should be taxable in 2021 and not 2022 and should have been reported on Form 1099-R with codes P and J. 

It seems Vanguard won't be correcting any of the Form 1099-Rs.

If they don't correct any of the Form 1099-Rs I would report the 2022 Form 1099-R with codes 8 and J on your 2022 tax return as shown on your Form 1099-R.

The Form 1099-R with codes P and J you will have to split up and file substitute Form 1099-R on your 2022 tax return.

One Form 1099-R with codes Pand J to file on your amended 2021 tax return:

Box 1 $2,664.17 (excess contribution in 2021 for 2021 plus earnings)

Box 2a  $186.39 (earnings)

Box 7 P and J

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc." 
7. Box 1 $2,664.17 (excess contribution in 2021 for 2021 plus earnings)
8. Box 2a enter $186.39 (earnings)
9. Box 7 enter P and J
10. Click "Continue"
11. On the "Which year on Form 1099-R" screen say that this is a 2022 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. 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 "Continue")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

One Form 1099-R with code J to file on your 2022 tax return:

Box 1 $2,087.61

Box 2a blank

and check Box 2b "Taxable amount not determined" 

Box 7 J

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc." and "I need to prepare a substitute 1099-R"
7. Enter the information and continue through the question
8. On the "Your 1099-R Entries" screen click "add another Form 1099-R" 
9. Enter Form 1099-R with codes 8 and J and continue through the questions
10. On the "Your 1099-R Entries" screen click "continue" after entering all Form 1099-Rs
11. Answer all the questions and make sure you enter the net contributions prior to 2022 on the "Enter Prior Year Roth IRA Contributions" screen
12. Answer the remaining question.

[sridharm]

Thank you Dana for your prompt guidance. I will review your guidance and will reach out if I nee further

help.

Thank you as always for your excellent support.

Regards,

Sri

[sridharm]

Hi Dana B,

I completed entering all information for my Year2022 tax return by following your guidelines. Is there

anyway I can provide you something with which you can confirm all I did is correct.

Thank you for your help as always.

Regards,

Sri

[sridharm]

Hi Dana B,

After entering all 1099-R for myself and for my spouse based on your inputs the Form 5329 for my wife is

generated as below. Am I doing something wrong.

Form 5329 for my wife

Part I Additional Tax on Early Distributions

1 Early distributions includible in income (see instructions). For Roth IRA distributions, see instructions .                        1 2,106.
3 Amount subject to additional tax. Subtract line 2 from line 1                                                           3 2,106.
4 Additional tax. Enter 10% (0.10) of line 3. Include this amount on Schedule 2 (Form 1040), line 8 .                                4       211

Could you please guide me on this.

Thank you

Sri

[DanaB27]

Yes, you can send me a “diagnostic” file that has your “numbers” but not your personal information. Then I can review the retirement section. If you would like to do this, here are the instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number and tag me @DanaB27. This will allow me to open a copy of your return without seeing any personal information.  

@sridharm 

[DanaB27]

Did you make sure to enter your wife's prior net contributions when TurboTax asked (see step 11)? This amount should include the contribution for 2020, 2019, and prior years (including the excess contribution for 2020 and 2019). Therefore the excess of $1,800 should be included in the net contribution amount. 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc." and "I need to prepare a substitute 1099-R"
7. Enter the information and continue through the question
8. On the "Your 1099-R Entries" screen click "add another Form 1099-R" 
9. Enter Form 1099-R with codes 8 and J and continue through the questions
10. On the "Your 1099-R Entries" screen click "continue" after entering all Form 1099-Rs
11. Answer all the questions and make sure you enter the net contributions prior to 2022 on the "Enter Prior Year Roth IRA Contributions" screen
12. Answer the remaining question.

@sridharm 

[sridharm]

Hi DanaB,

Here is the Token number: 1107182@DanaB27.

Thank you for your help.

Regards,

Sri

[DanaB27]

I reviewed your token and for your wife, you entered the $2,087.61 Form 1099-R with codes 8 and J but you need to only use code J. Once you fixed this, the retirement section for 2022 looks correct.

@sridharm 

[sridharm]

Thank you very much DanaB.  Should enter it as below i.e.

leave Box 2a blank

and Box2b as

"Taxable amount not determined box is checked".

7 Distribution code(s)  as J

Distribution info
Box 1 - Gross distribution                                             Box 2a - Taxable amount
$2,087.61 $
Box 2b
Taxable amount not determined box is checked

7 Distribution code(s) J

Or just leave everything the way it and update only 7 Distribution code(s)  J.

Thank you for your support.

Regards,

Sri

[DanaB27]

You will enter it as:

Box 1: $2,087.61

Box 2a: blank

and check Box 2b "Taxable amount not determined" 

Box 7:  J

@sridharm