Excess Roth IRA Contributions w/ Net Loss

[ChiMing]

Hi,

Got two separate questions.

First question:

I am hoping to amend my 2021 tax returns since I have received my 1099-R for my excess Roth IRA contribution. I withdrew my excess prior to the tax deadline so in theory, I should not be penalized the 6%. However, the problem I am running into is that my initial excess contribution was $6000. My withdrawal was only $3591(PJ)  because of net loss, and Turbo Tax is still calculating the 6% on the "remaining" $2409 that I did not withdraw. It was a loss, so there is no $2409 to withdraw. How do I indicate that on my amendment form?

Second question:

I had an excess contribution to my Roth IRA in 2020 and didn't learn about the issue until 2022, so I withdrew the amount that I was advised on - $3290 (which was supposedly the full amount that I needed to withdraw). However, my brokerage company classified it as a J - early withdrawal because they said it has been too long after the deadline for it to be classified as PJ. So what are the implications?

• Does that mean I shouldn't be penalized the 6% on the $3290 for two years? I think I was.
• Does this now become a 1x 10% taxable amount that I would include in this year's tax returns?
• Am I being penalized on both ends, the 6% and 10%?
• Is it even a thing to not be able to classify it as PJ because "too much time has passed"? If not, is there a way to override that?

Thank you in advance.

[DanaB27]

Q1 When you requested the withdrawal of excess contribution plus earnings did you request $6,000 but only got $3,591? Is box 2a $0? If yes, then you can enter $6,000 as withdrawn on the penalty screen during the IRA contribution interview in your 2021 tax return.

But if you requested less and still have an excess contribution left in the Roth IRA then TurboTax will ask about the value at the end of the year (plus contributions made for 2021 in 2022) and will calculate the 6% penalty on the smaller of the value or of the excess contribution left in the account. Therefore, if your balance is lower than the excess then TurboTax uses the balance left in the account to calculate it. If you have an excess left in the Roth IRA then you will need to make a regular distribution (which might mean emptying the account if less than the excess is left) in 2023 and this will resolve the excess contribution on your 2023 tax return.

Q2. No, you will have to pay the 6% penalty for the 2020 excess on your 2020 and 2021 tax returns because it wasn't removed until 2022.

No, you are getting a return of your contribution and this isn't taxable and not subject to the 10% penalty. Please make sure you enter your net contributions prior to 2022 in the follow-up questions in the retirement section.

No, code J is correct in your case. You removed the 2020 excess as a regular distribution (without earnings) after the 2020 extended due date. 

[ChiMing]

@DanaB27 

Q1, yes I contributed $6000 and only has $3591 left because I used the money to buy stock and the value dropped 😭 . So when I requested to take out $6000 as excess contribution, they calculated the value left is $3901. And yes the box 2 says $0. However shouldn't the box say negative $2099 because I lost it?

Yes, I still have money left in my Roth because that was the money from 2019 contribution, should I take a early contribution and close the account?

[DanaB27]

If you requested $6,000 but got less because of the loss then you don't have a 2021 excess contribution anymore. Sorry for the miscommunication in the other post, it sounded as if you had requested less but the good news is we figured it out and you don't have an excess contribution for 2021.

Since you withdrew the full Roth IRa contribution for 2021 you can either delete the Roth IRA contribution on your 2021 return or you can 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. Keep the $6,000 Roth IRA contribution for 2022
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.
7. Continue until the penalty screen and enter the excess contribution amount of $6,000 as withdrawn by the due date.

No 2a with $0 is correct. Unfortunately, you cannot claim the loss anywhere. 

After you followed the steps above you should only have the 6% penalty on the 2020 excess contribution (which you removed in 2022) on your 2021 tax return.

@ChiMing