Excess Roth IRA contributions for prior years

[redhalcyon]

I've been making excess contributions to my Roth IRA for 2017, 2018, and 2019, despite my AGI exceeding the maximum. I also used these contributions to invest in various positions within the last couple years. 

I talked with my broker and they said, "you'll need to consult a tax advisor on how to file the distribution correctly to account for it as removing excess." Can someone help please with this, and also let me know how I can report/file this through TT Premier?

[ThomasM125]

If you didn't report the excess contributions in the years they were made, you need to go back and amend the tax return for each year you had excess contributions to pay in the excise tax applicable to each year. TurboTax will calculate that and prepare the necessary forms once you enter the amount of your IRA contribution. You will see an option to amend your tax returns on your home page when you log into TurboTax.

You need to withdraw an amount equal to the excess contribution in the current year or reduce your allowable contribution in the current year by the accumulated excess contribution amount to avoid being penalized in the current and future years.

You will receive a form 1099-R in 2022 which will report the 2021 distribution (if necessary) and you will enter that on your 2021 tax return to account for the distributions this year.

[redhalcyon]

I'm currently trying to amend my 2018 return, but I'm not sure how to report the excess contributions. I see an "IRA, 401(k), Pension Plan withdrawals" section under Wages & Income > Retirement Plans and Social Security, but when I go through those forms, I don't see where to put (excess) contributions.

[mcclbeth]

Contact the custodian for the Roth IRA to ask how to proceed with removing the excess.  They should be able to help you, or perhaps change the recording of the the excess as not Roth IRA funds.  Might be better to move that money.

[DanaB27]

You will enter the contribution under IRA contributions and TurboTax will calculate automatically the penalty:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Enter the contribution and go through the interview. You will also have to enter that you had an excess contribution from 2017 Form 5329 line 16. At the end TurboTax will tell you that you have a penalty.

To avoid the penalty in future years you only have to remove the excess contributions as a regular distribution (since it is after the due date you do not need to remove the earnings). Please contact your bank to request the distribution in the amount of all excess contributions.

@redhalcyon

[fluxquantum94]

Hello, @ThomasM125 @and to whom others it may concern. I am dealing with a similar situation. I made an excess contribution in tax year 2020 but did not correct it in tax year 2021.

Unexpectedly, the 1099-R I received had an codes ‘8j.’ For the 2021 tax year, I am working on making an excess contribution withdraw before this year’s deadline (I filed an extension already).

My questions are, while trying to correct an excess contribution made for tax year 2021, how do I also separately correct the excess contributions in tax year 2020 at this point?

How should this get reported in turbo tax?

For the excess from tax year 2020, will I get penalized for two years now?

Thank you for your time.

[DanaB27]

To verify, you made an excess contribution for 2020 that did not remove before the due date? And you made another excess contribution for 2021 that you will remove before Oct 17th, 2022?

It seems you removed some excess contribution because you got 2021 Form 1099-R with codes 8J. This code indicates that a contribution made for 2021 was removed in 2021. 

Yes, if you didn't remove the 2020 excess by December 31, 2021 then you will have to pay the 6% penalty for 2020 and 2021.

For 2020 you will only enter the contribution and TurboTax will automatically calculate the 6% penalty on Form 5329 part IV. Please see How do I amend my 2020 return? if needed.

For 2021 please follow these steps:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth contribution for 2021
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 (if it wasn't carried over).
7. On the penalty screen enter that you removed the excess contribution for 2021 (without earnings and losses). TurboTax will only calculate the 6% penalty on the 2020 excess amount.

To avoid the 6% penalty in 2022 on the 2020 excess you will have to take a regular distributions to remove the excess contribution (without earnings or losses) by December 31, 2022.

@fluxquantum94

[fluxquantum94]

@DanaB27 Thanks a bunch for the guidance.

Yes, I made an excess contribution of 1800$ for tax year 2020 that I did not remove by the filing deadline (I thought I did but the code 8 & J indicated that my broker withdrew the excess for tax year 2021 instead).

So now I have 1800 removed for tax year 2021 but will need to request an additional 4200 to be removed also for tax year 2021. With my 1099-R already reporting an initial 1800 excess removed for tax year 2021 that I did earlier last year,  how should I report the additional excess removal for the same tax year but performed in 2022 (as I won't get the form from my broker until 2023 otherwise)?

Also, for some clarification, the 6% I need to pay for tax year 2021 due to excess contribution in tax year 2020 will be applied to my tax year 2021 returns? And the other 6% penalty will be applied when I amend my tax year 2020 returns?

In order to avoid 6% penalty (on excess from 2020) yet again in 2022 tax year, I just need to remove the 1800$ excess contribution calculated for tax year 2020 as a regular distribution in 2022? - in other words I should NOT be asking my broker to remove an excess contribution?

Lastly, the excess carryover you referred to, I didn't explicitly do anything like that, but is that an option to apply an excess contribution from one tax year to another to avoid penalties?

Thank you so much for your help and time.

[DanaB27]

Yes, you will only take out a regular distribution of $1,800 and not request to remove an excess contribution for the 2020 excess. You will get a 2022 Form 1099-R with code J (if you are under 59 1/2) and enter it on your 2022 tax return. When TurboTax asks about net contributions in the follow-up questions include the $1,800 in the net contribution amount made since it wasn't removed by the 2020 due date (including extensions).

First you will enter the $6,000 contribution amount as withdrawn on the penalty screen:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth contribution for 2021
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 (if it wasn't carried over).
7. On the penalty screen enter that you removed the $6,000 excess contribution for 2021 (without earnings and losses). TurboTax will only calculate the 6% penalty on the 2020 excess amount.

The carryover I was referring to was TurboTax transferring data. If TurboTax didn't transfer that information then you will have to enter the excess contribution amount from 2020 ($1,800) on the "Enter Excess Contributions" screen so TurboTax can calculate the 6% penalty.

  But there is a option to apply an excess to the next year if you are allowed to make contributions in that year and haven't entered contributions. The screen "How Much Excess to 2021?" only comes up if can make contributions in 2021.

You will enter the Form 1099-R you got for the removal of $1,800 excess and create Form 1099-R for the removal of the rest of the excess:

1. Click on the "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R”
3. Answer "Yes" to "Did you get a 1099-R in 2021?"
4. Enter Form 1099-R with 8J
5. Select "add a Form 1099-R"when you are on the "Review your 1099-R info" screen
6. Select "I'll type it in myself"
7. Box 1 enter total distribution (contribution plus earning)
8. Box 2a enter the earnings
9. Box 7 enter J and P
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.

@fluxquantum94

[fluxquantum94]

Hello @DanaB27 I am back again with a follow up question.

Last year, I removed an early excess contribution to my ROTH IRA and therefore that essentially became an early distribution. The goal was to remove the excess ahead of time to avoid paying a tax penalty for tax year 2022 so I wanted to take care of this for tax year 2021. I have a 1099-R (received in 2023) for an amount of 260$ and it was associated with a loss and so I only got 237.04 with tax withheld from that amount. I have a PJ code and the form is for 2022. I had the impression that I wouldn't be tax for any early distribution that took a loss from my ROTH IRA as that's a post tax account but turbo tax is calculating otherwise. Am I getting something wrong? Thank you for your time.

I want to note that I had already reported this distribution in my 2021 tax year submission, if that changes anything. Thanks again.

[DanaB27]

Yes, if you had a loss with the return of excess contribution then box 2a on your 2022 Form 1099-R with code PJ should be $0. Therefore, it isn’t taxable since only the earnings are taxable in 2021.

Yes, you correctly reported it in 2021. But since you had taxes withheld you will have to enter this Form 1099-R on your 2022 tax return as well to apply the taxes to 2022. Code P will tell TurboTax to ignore the distribution and only apply the taxes withheld to your 2022 tax return.

@fluxquantum94

[fluxquantum94]

Thanks for the expedient reply @DanaB27 . Appreciate you confirming about my tax liability if there's a loss with my excess contribution.

The distribution I got in 2022 is being reported by tax turbo as taxable in the form 5329 calculation. The 237 amount is what I had reported in my tax year 2021's 1040 and 1099-R (the idea was that I wanted to remove the excess amount before filing deadline of my 2021 taxes in 2022).

But it's showing up again in my 1099-R for 2022 tax year but being just considered as a excess contribution not a distribution. My 1099-R also mentions a 50$ early distribution which deducted from my tax liability because it was an excess that was carried over from my 2020 tax amendment.

I simply imported my 1099-R forms straight from fidelity. Is there something I filled out incorrectly? Thank you for your time.

[DanaB27]

If it is calculated in part IV of Form 5329 then this means you had an excess contribution entry carried over. You removed the 2021 excess contribution before the deadline therefore you need to delete the entry:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen delete the excess contribution amount for 2021 that was carried over.

You might have to check your 2021 tax return if you had wrongly the 6% excess contribution penalty. If yes, then you will have to amend your 2021 tax return and enter that you withdrew the 2021 excess contribution before the due date:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue to the penalty screen and enter the 2021 excess contribution (without losses).

To confirm the only Form 1099-R you have is with code PJ, correct with $260 in box 1 and $0 in 2a?

Did you ever remove the 2020 excess contribution mentioned above in last year's post?

@fluxquantum94 

[fluxquantum94]

Hi @DanaB27 I received in 2023 two 1099-Rs from fidelity for tax year 2022.

One is for $50 which was an early distribution that I withheld taxes for, it had a code 'J,' this 50$ I believe was the excess I had in tax year 2020 that also carried over to tax year 2021 which I paid penalties for - reflected in my 2020 and 2021 tax year amended forms.

And my other 1099-R was for $237.04 (box 1a) and $0 in (box 2a) due to excess contribution with codes 'PJ'. I had withdrawn excess 260 but had losses hence the smaller distribution amount.

For tax year 2021, I had already reported this amount $237.04 box 1a and box4 $23.70 with code 'PJ'.

Slightly confused now since it seems they didn't report withheld taxes from 2022 which I thought I requested.

To answer your other question, I did remove my excess contribution for tax year 2020 (amended). It ultimately came in the form of a 1099-R reported for 2021, my $860 excess contribution resulted in me getting gross distribution box 1a of $1,001.74 and a box2a of $141.74 , box 4 of $14.17. I still had $50 considered excess because I didn't realize that the earnings in box 2a counted as income (found this out in 2022).

So to make sure I understood. May I just omit the 1099-R for the 237.04 amount this year if I reported it last year? It was a gross distribution at a loss so I'm not sure why it's being considered an excess contribution at all at this point.

Again appreciate your time and help.

[fanfare]

when earnings gain or (loss) changes the amount you get back

that does not change the amount of excess you removed.

if the earnings were positive you have to report that as income for the year that contribution was made, and possibly an early withdrawal from a Roth.

@fluxquantum94