Mistakenly contribute to Roth IRA in 2023 but reversed it in 2024, got 1099-R, what to do?

[superlyc]

Hi,

My wife mistakenly converted to Roth IRA directly in 2023, because she always do that before. But she realize that 2023 our income is not eligible to directly contribute to Roth IRA, so she called bank in Jan 2024 and reversed it. But she got a 1099-R for the Roth IRA account and having distribution amount and taxable amount?
My questions are
1 Is there a taxable amount because of the gain between the time she put money in and took out of the account?
2 How should I enter this 1099R in turbo tax correctly? Are we going to pay tax that we do not owe if we simply upload this to turbo tax? I mean we did not took any money out for the Roth IRA basically just took out the amount that was not supposed to be there at the first place.

Thank you

[DanaB27]

1. Yes, the gains (earnings) are taxable in the year the excess contribution was made.

2. To confirm the 2024 From 1099-R has code PJ in box 7? If yes then this will have to be reported on your 2023 return. If you didn't add this 2024 Form 1099-R when you filed the 2023 return then you will have to amend the 2023 return. Please see How do I amend my federal tax return for a prior year? Only the earnings in box 2a are taxable.

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
4. Click "Continue" after all 1099-R are entered and answer all the questions.
5. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

If you had any taxes withheld then you will have to enter the 2024 Form 1099-R with code PJ also on your 2024 return to get the withheld taxes applied to 2024 since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not add anything to your income in the 2024 tax return but the withholdings will be applied to 2024.

[superlyc]

Hi, Thank you for the response.

Yes, it has PJ code. So, even the form is for 2024, I still need to report it for 2023? But we did not receive this form until Jan, 2025. The money was deposited to her Roth IRA in 2023 and reversed (back to her bank account) in Jan 2024, so technically, the additional taxable gain amount was made in 2024, right? Just try to confirm, you are saying this money should be report to 2023 not 2024? I am a little confused.

Plus, at the end, TurboTax say it has too many letters for the code, it ask me to select from a drop down menu, where either"P" or "J", not "PJ". Which should I select?

Thank you

[DanaB27]

Yes, a 2024 Form with code P and J will have to be entered on your 2023 tax return since the earnings are taxable in the year the contribution was made. Code P on a 2024 Form 1099-R states "Excess contributions plus earnings/excess deferrals (and/or
earnings) taxable in 2023."

You will select two codes P and J. If you use TurboTax Online click on "I have more than one value in Box 7".

[superlyc]

Thank you. 
So I should amend 2023 first before I can file 2024?

[DanaB27]

No, you can go ahead and file your 2024 tax return and then amend your 2023 tax return.

[superlyc]

OK. Thank you. So do I need to include this 1099-R in 2024 return? From another post, it seems I can either include this or not?

And I tried to start to amend 2023. But after I select adding 1099-R, before I adding the form or enter any numbers, it shows a Federal Due of ~$9500, which does not make sense, right? One, I have not enter any information for the amendment yet, two, the taxable on this 2024 1099-R is only $126. How does it make the Federal Due > $9000?

[DanaB27]

If you had no taxes withheld then you do not need to add the 2024 Form 1099-R with code P and J on the 2024 return. 

Did you save a copy of the original filed 2023 Form 1040? If yes, then you can compare line by line to see what changed. 

Generally, the refund calculator will start new at $0 and only reflect the changes in the refund or tax due (TurboTax).

[superlyc]

Yes. Thank you. I found Turbotax change my filling status when I amending 2023, which is weird.