Excess Roth IRA contribution with loss withdrawn

[insuq]

I’m working on my 2022 return. In Jan 2023, I made an excess 2022-designated contribution to my Roth IRA of $6,000 (didn’t realize I’d gone over the MAGI limit). This was money already taxed as part of my W2. I spoke with Fidelity and they calculated the excess contribution minus loss as $5,800 which I hope to receive soon.

I’m confused by some of the answers to similar questions on here, particularly because my federal refund amount changes after entering the contribution information and saying the excess was withdrawn. Shouldn’t the refund amount remain unchanged since the excess contribution was already taxed on the W2?

So far I created a 1099-R for 2023 (that I expect to receive next year) with box 1 gross distribution $5,800, box 2a taxable amount $0, box 7 codes J and P. So far so good.

Now in the Deductions section, I go to “Retirement and Investments,” then “Traditional and Roth IRA Contributions.” Here I select Roth IRA. “Is This a Repayment of a Retirement Distribution?” No. Now it asks for my Roth contributions for 2022. I enter $6,000 and click continue. The refund amount drops. The next question asks if I switched any of this contribution over to a traditional IRA. No. Did I open any IRAs in 2021 or before. I say yes since this in an old Roth. Next, it asks if I’d like TurboTax to track my Roth IRA basis and I click No.

Then it says to enter excess Roth IRA contributions for prior years. Is this from before 2022? Because the only way for my refund amount to return to the original amount is if I put $0 here (I never had excess contributions prior to 2022 so this would be correct if prior refers to pre-2022). Next, I have to enter contributions withdrawn before due date of my return and I put $6,000.

Is this the right way to enter all of this information? I’m not sure about box 1 gross distribution of $5,800 (vs $6,000) and 2a taxable amount $0 (vs -$200 loss)? I’m also unsure about the part where I enter 0 for excess contributions in prior years since I’ve seen other posts where people mention seeing a penalty-related question. I don’t see this question, but if I say I had excess contributions of $6,000 in prior years, even if I say I withdrew the $6,000, the refund amount drops which I don’t understand given that that contribution was already taxed in my W2. Any help is greatly appreciated!

[MinhT1 · Accepted solution]

If you withdrew your 2022 excess contribution to your Roth IRA before the due date of the 2022 tax return (April 18, 2023), make sure that you also withdraw the related earnings/losses. You have already done this.

On your 2022 tax return, you do not report the excess contribution as it has been withdrawn. The earnings have to reported and taxed in 2022. 

If there is a loss, that loss is not deductible.

When you receive the 2023 form 1099-R (in 2024) for this withdrawal, there is no further action needed.

[insuq]

Thanks @MinhT1, this is helpful. I’m still unsure about these interview questions:

• Enter your total Roth IRA contributions for 2022: (the $6,000 I originally contributed or $0 since I withdrew it?)
• Enter excess Roth IRA contributions for prior years: (from your answer, I should put $0 here, correct?)
• Contribution withdrawn before due date of your return: (the full $6,000 or $5,800 which includes the loss Fidelity subtracted from my distribution?)

[DanaB27]

Yes, if you withdrew all of your contributions for 2022 then you don’t need to enter them. Another option is to enter your $6,000 contribution and then enter on the penalty screen that you withdrew $6,000 by the due date.

Yes, if you didn’t have excess contributions in prior years (or removed them) then you will enter $0 when TurboTax asks about prior year excess contributions.

Yes, you would enter the contribution amount as withdrawn by the due date ($6,000).

@insuq

[lori rose]

I had this happen to me a year or two ago. I would enter $0 for the first box--since you corrected it--and I still enter $0 for previous years excess contributions (because I corrected mine, too), but it feels wrong because I am a scrupulously honest person who doesn't cheat on my taxes. Don't fret too much. You fixed it, now it's like it never happened!

[fanfare]

"Shouldn’t the refund amount remain unchanged "

Correct.

The only way this will happen is if you enter a distribution (return of excess) of $6000, not $5,800.

@insuq