Handling excess Roth contributions in TurboTax 2021

[JohnnyRico]

Doing my 2021 taxes, TurboTax flagged that I had made excess Roth contributions. I chose to remove the excess contributions. My Roth is at Vanguard, and I went online to process the removal. They calculated the earnings and I have received the money: $7,000 in contributions and $21.31 in earnings. Vanguard says it will send me a 1099-R "in the year after the excess was removed", so that sounds like a 2022 1099-R sent to me in 2023.

Now the question is, how to handle this? I did some research and it looks like my choices are either to a) do nothing until I get the 2022 1099-R, at which time I will have to amend my 2021 taxes or b) handle it in my 2021 taxes by creating a substitute 1099-R to represent the distribution. I am also under 59 1/2 so I understand a penalty comes into play as well.

I would rather not amend my 2021 taxes and think I can easily generate the substitute 1099-R. My understanding is that it would show: 

• Box 1: $7,021.31
• Box 2: $21.31
• Box 7: P & J
• Specify this is a 2022 1099-R

Regarding the penalty, I think that once I enter this 1099-R, TurboTax will automatically handle calculating that and adding the proper form to my return.

When I get the 1099-R from Vanguard next year, my understanding is that I would disregard it.

Do I have all this correct?  This is a little more complicated than my taxes usually get, so I'd appreciate any comments or advice. 

[DanaB27 · Accepted solution]

Yes, but you will need to enter that you withdrew the excess contribution on the penalty screen during the IRA contribution interview:

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 your contribution
5. Continue until the penalty screen and enter the excess contribution amount of $7,000 as withdrawn (without earnings).

Yes, the entries would be correct for Form 1099-R. Yes, you can ignore Form 1099-R with codes PJ when you get it in 2023 since you already reported it.

[JohnnyRico]

Yes, the TurboTax interview is what alerted me to the excess contribution, so I have already specified that I withdrew the excess in the interview. Thank you so much for the help!