Hey folks, I was hoping to get your help with dealing with multiple excess Roth IRA contributions and withdrawals. I've gone through a ton of other forum posts and have a general idea of what to do, but I'm hoping you can double check what I've done. In particular, I'm looking for double-checking of the following:My 2023 1099-R form: I will only get my 2023 1099-R form next year but I want to include it in my 2022 tax return this year so I am forced to guess what it will look likeMy 2022 tax return: I'm not sure what exactly to enter for many of the TurboTax questions(eg. Do I enter my ACTUAL contribution (including the excess) or what I was SUPPOSED to contribute (without the excess))For your convenience, I've added both a brief summary and a detailed timeline below: Summary2021 Roth IRAApril 2022: Made excess contribution of $3,050April 2022: Withdrew $3,050 + earnings of $15.362022 Roth IRA:April 2022: Made excess contribution of $6,000April 2022: Withdrew $1,450 + earnings of $7.30April 2023: Withdrew $4,550 - loss of $85.692022 1099-R form: Code 8J2023 1099-R form: Code PJ2021 Tax Return:Reported what I was supposed to contribute to 2021 Roth IRANo 1099-R form2022 Tax Return:Reported what I was supposed to contribute to 2022 Roth IRAReported $3,050 actual excess contribution to 2021 Roth IRAAdded both 2022 and 2023 1099-R forms Detailed Timeline 2022 Excess ContributionOn April 12 2022, I made the following Roth IRA contributions:2021 Roth IRA: Contributed $6,0002022 Roth IRA: Contributed $6,000 WithdrawalShortly afterwards, I realized that, based on my 2021 income, my 2021 contribution was too high so I withdrew the excess from my 2021 contribution. Obviously I didn't know my 2022 income yet but, to be safe, I compared my 2021 income to the 2022 Roth IRA contribution limits and preemptively made a partial withdrawal from my 2022 contribution as well. i.e. On April 14 2022, I made the following Roth IRA withdrawals:2021 Roth IRA:Requested withdrawal of $3,050After including earnings of $15.36, received distribution of $3,065.362022 Roth IRA:Requested withdrawal of $1,450After including earnings of $7.30, received distribution of $1,457.30Thus, in 2022, I received a total distribution of $4,522.66 (including total earnings of $22.66) 2021 Tax ReturnIn April 2022, I filed my 2021 tax return with the following information:2021 Roth IRA contribution: $2,950Note that I entered what I should have contributed, not what I actually contributedExcess contribution for prior years: $01099-R form: None 2023 WithdrawalNext year, after getting my final 2022 income, I realized that actually I was not allowed to contribute anything to my 2022 Roth IRA so I made another withdrawal to remove the rest of it. i.e. On April 15 2023, I made the following Roth IRA withdrawal:2022 Roth IRA:Requested withdrawal of $4,550After including loss of $85.69, received distribution of $4,464.31 2022 Tax ReturnI haven't filed this yet (extended deadline to Oct 16 2023), but this is what I have entered so far:Roth IRA contributions from prior years: (includes the $2,950 I should have contributed to the 2021 Roth IRA, not what I actually contributed)2022 Roth IRA contribution: $0Note that I entered what I should have contributed, not what I actually contributedExcess contribution for prior years: $3,050Note that this is the excess I actually contributed to the 2021 Roth IRA only1099-R forms:2022 1099-R form:Issued in Jan 2023Total distribution (box 1): $4,522.66Total taxable earnings (box 2a): $22.66Distribution code (box 7): 8J2023 1099-R form:Has NOT been issued yet, so I am just guessing that this is what it will look like!Total distribution (box 1): $4,464.31Total taxable earnings (box 2a): $0Distribution code (box 7): PJIn the end, TurboTax added $23 (presumably rounded up from my $22.66 total earnings) to my taxable income.Note that it did not seem to charge me any additional 10% early withdrawal penalty on the earnings

Level 3

Solved

Multiple excess Roth IRA contributions and withdrawals

Forum|Forum|2 years ago
October 10, 2023
3 replies
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Hey folks, I was hoping to get your help with dealing with multiple excess Roth IRA contributions and withdrawals. I've gone through a ton of other forum posts and have a general idea of what to do, but I'm hoping you can double check what I've done.

In particular, I'm looking for double-checking of the following:

My 2023 1099-R form: I will only get my 2023 1099-R form next year but I want to include it in my 2022 tax return this year so I am forced to guess what it will look like
My 2022 tax return: I'm not sure what exactly to enter for many of the TurboTax questions
(eg. Do I enter my ACTUAL contribution (including the excess) or what I was SUPPOSED to contribute (without the excess))

For your convenience, I've added both a brief summary and a detailed timeline below:

Summary

2021 Roth IRA

April 2022: Made excess contribution of $3,050
April 2022: Withdrew $3,050 + earnings of $15.36

2022 Roth IRA:

April 2022: Made excess contribution of $6,000
April 2022: Withdrew $1,450 + earnings of $7.30
April 2023: Withdrew $4,550 - loss of $85.69

2022 1099-R form: Code 8J
2023 1099-R form: Code PJ
2021 Tax Return:

Reported what I was supposed to contribute to 2021 Roth IRA
No 1099-R form

2022 Tax Return:

Reported what I was supposed to contribute to 2022 Roth IRA
Reported $3,050 actual excess contribution to 2021 Roth IRA
Added both 2022 and 2023 1099-R forms

Detailed Timeline

2022

Excess Contribution

On April 12 2022, I made the following Roth IRA contributions:

2021 Roth IRA: Contributed $6,000
2022 Roth IRA: Contributed $6,000

Withdrawal

Shortly afterwards, I realized that, based on my 2021 income, my 2021 contribution was too high so I withdrew the excess from my 2021 contribution. Obviously I didn't know my 2022 income yet but, to be safe, I compared my 2021 income to the 2022 Roth IRA contribution limits and preemptively made a partial withdrawal from my 2022 contribution as well.

i.e. On April 14 2022, I made the following Roth IRA withdrawals:

2021 Roth IRA:

Requested withdrawal of $3,050
After including earnings of $15.36, received distribution of $3,065.36

2022 Roth IRA:

Requested withdrawal of $1,450
After including earnings of $7.30, received distribution of $1,457.30

Thus, in 2022, I received a total distribution of $4,522.66 (including total earnings of $22.66)

2021 Tax Return

In April 2022, I filed my 2021 tax return with the following information:

2021 Roth IRA contribution: $2,950

Note that I entered what I should have contributed, not what I actually contributed

Excess contribution for prior years: $0
1099-R form: None

2023

Withdrawal

Next year, after getting my final 2022 income, I realized that actually I was not allowed to contribute anything to my 2022 Roth IRA so I made another withdrawal to remove the rest of it.

i.e. On April 15 2023, I made the following Roth IRA withdrawal:

2022 Roth IRA:

Requested withdrawal of $4,550
After including loss of $85.69, received distribution of $4,464.31

2022 Tax Return

I haven't filed this yet (extended deadline to Oct 16 2023), but this is what I have entered so far:

Roth IRA contributions from prior years: (includes the $2,950 I should have contributed to the 2021 Roth IRA, not what I actually contributed)
2022 Roth IRA contribution: $0

Note that I entered what I should have contributed, not what I actually contributed

Excess contribution for prior years: $3,050

Note that this is the excess I actually contributed to the 2021 Roth IRA only

1099-R forms:

2022 1099-R form:

Issued in Jan 2023
Total distribution (box 1): $4,522.66
Total taxable earnings (box 2a): $22.66
Distribution code (box 7): 8J

2023 1099-R form:

Has NOT been issued yet, so I am just guessing that this is what it will look like!
Total distribution (box 1): $4,464.31
Total taxable earnings (box 2a): $0
Distribution code (box 7): PJ

In the end, TurboTax added $23 (presumably rounded up from my $22.66 total earnings) to my taxable income.

Note that it did not seem to charge me any additional 10% early withdrawal penalty on the earnings

Not A Product Question

Best answer by dmertz

In 2021 and 2022 TurboTax, enter the actual contribution made for the particular year, then indicate how much of that year's contribution you asked to be returned (not the adjusted amount distributed to accomplish that return of contribution). TurboTax will prompt you to prepare an explanation statement for these returns of contribution.

Both of the Forms 1099-R need to be reported on your 2022 tax return by entering them into 2022 TurboTax. Be sure that for the code PJ 2023 Form 1099-R you indicate that it's a 2023 form. The $15.36 plus $7.30 of earnings distributed in 2022 are indeed subject to a 10% early-distribution penalty on your 2022 tax return because the distributions occurred before December 29, 2022 when such penalties on corrective distributions were eliminated and (presumably) you are under age 59½. With code J being present, I see no reason why TurboTax would not be calculating a 10% penalty on this amount on Part 1 of Form 5329 unless you claimed (possibly incorrectly) a penalty exception on line 2.

A

Anonymous_

Level 15

Another one for @dmertz

T

tabula101Author

Level 3

Thanks @Anonymous_ .
@dmertz Have you had a chance to take a look at my post yet? Tax deadline is in a few days so would appreciate your thoughts before then

D

dmertzAnswer

Level 15

In 2021 and 2022 TurboTax, enter the actual contribution made for the particular year, then indicate how much of that year's contribution you asked to be returned (not the adjusted amount distributed to accomplish that return of contribution). TurboTax will prompt you to prepare an explanation statement for these returns of contribution.

Both of the Forms 1099-R need to be reported on your 2022 tax return by entering them into 2022 TurboTax. Be sure that for the code PJ 2023 Form 1099-R you indicate that it's a 2023 form. The $15.36 plus $7.30 of earnings distributed in 2022 are indeed subject to a 10% early-distribution penalty on your 2022 tax return because the distributions occurred before December 29, 2022 when such penalties on corrective distributions were eliminated and (presumably) you are under age 59½. With code J being present, I see no reason why TurboTax would not be calculating a 10% penalty on this amount on Part 1 of Form 5329 unless you claimed (possibly incorrectly) a penalty exception on line 2.

T

tabula101Author

Level 3

Thanks @dmertz ! I'm a little confused about the contribution though, since TurboTax's instructions seem to imply that, if I withdraw part of my contribution, then I should enter only the remaining amount (the "effective" contribution / what I should have contributed):

Here are the instructions on how to correct an excess Roth IRA contribution, taken from 2023 TurboTax online:

There are several options available for correcting excess contributions. ... The options available include:

...

2. Withdraw the excess (including any money you earned on it) before the filing deadline for your tax return. If you do this, you'll need to correct the amount you entered in TurboTax as your contribution.

Are you saying this instruction is wrong or am I misinterpreting it?

D

dmertz

Level 15

The instruction you quoted is incorrect. If you enter only the net contribution, TurboTax will not prompt you to provide the required explanation statement for the return of contribution.