Excess Roth contribution

[vmwatson]

In Feb 2022 I erroneously contributed $7000 directly to a ROTH IRA (when I needed to do a back door conversion).  Upon discovery of my error in Feb 2023, I did a return of excess contribution, removing the $ from the ROTH and then put the $7000 into a traditional IRA.  I  then did a back door conversion to put the $ back into my ROTH IRA.  I did receive a form 5498 for 2022

How do I report this on my 2022 taxes in TurboTax?

How do I handle it for my 2023 taxes?

[DanaB27]

To enter the nondeductible contribution to the traditional IRA for 2022 on your 2022 tax return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

This will create a 2022 Form 8606 with your basis on line 14 which will be entered on your 2023 tax return when you report the 2023 conversion.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2022?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. 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 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022"

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

Next year on your 2023 tax return to report the conversion:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs