Excess Roth contribution withdrawal

[goblue10]

We contributed $5,500 to a Roth IRA in 2021.  Our 2021 income exceeded the allowable limit for contributing to a Roth IRA.  

We withdrew the $5,500 contribution AND the earnings on that contribution in 2022.  

Do we owe any taxes on either the earnings or contribution?  

Do we need to pay a penalty for early withdrawal of either of these amounts?

We have not received the 1099 yet (nor do  I expect to before filing deadline).

Thank you!

[Opus 17]

The earnings will be taxable on your 2022 tax return, you will get a 1099-R next year.  There are no penalties or taxes on the withdrawn excess contributions as long as you complete the withdrawal of excess before the April 18 filing deadline.  

[goblue10]

Thank you.  When completing my taxes with Turbotax, I received the warning that income exceeded the allowable limit for Roth contributions.  It asked me to enter the amount of withdrawal from my Roth.  When I enter the amount it asks for a reason for withdrawal.  The options provided for a reason do not include withdrawal of excess contributions and therefore they are being shown as taxable.  

When filing my return for 2021, what is the proper way to reflect the withdrawal of the contribution and earnings so that I'm not being penalized for an early withdrawal?

[DianeW777 · Accepted solution]

It's quite likely you will receive a Form 1099-R in 2022 if you actually removed the excess in 2022 before filing your 2021 tax return as indicated. You must report those earnings in 2021 (with or without a Form 1099-R). Use code 8, in Box 7.

• 8 – Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021

Next year, when you receive the Form 1099-R for this same distribution, there should be a code P, which will show that the distribution was already included and taxed in your 2021 tax return. The result should be nothing taxable in 2022.

• P – Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021 (it will be changed from 2020 to 2021 for 2022 tax year)

[Opus 17]

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@goblue10 wrote:

Thank you.  When completing my taxes with Turbotax, I received the warning that income exceeded the allowable limit for Roth contributions.  It asked me to enter the amount of withdrawal from my Roth.  When I enter the amount it asks for a reason for withdrawal.  The options provided for a reason do not include withdrawal of excess contributions and therefore they are being shown as taxable.  

When filing my return for 2021, what is the proper way to reflect the withdrawal of the contribution and earnings so that I'm not being penalized for an early withdrawal?

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If you made a Roth contribution in 2021, and then withdrew it as excess before the filing deadline, then you didn't really make a Roth contribution at all.  You don't report a contribution and a withdrawal, you simply don't report anything. 

[goblue10]

Thank you!