Excess Roth Contribution 2021, Withdrawing Full Excess Amount in 2022, but I don't want to apply any excess to 2022

[NedTaxBux]

I keep getting the fix error of:

IRA contributions Line 26: Taxpayer excess Roth contribution credit should be equal to $3220 ***, the Roth contribution credit from Form 5329 Part IV.

*** less than max Roth due to MAGI

My situation is 2021 I have excess $4140 contributions.  Im withdrawing that full amount this tax year.  So I have no excess this year 2022.  So I am putting in zero, because if I withdraw the full excess Roth amount this tax year (in my case $4140), I will have zero contribution credit.  

Any comments on the proper way to account for this?  Thanks for the comments

[DanaB27]

It seems you have a carry-over from the 2021 excess contribution. If you removed the excess plus earnings before the 2021 extended due date in 2022 then you don't have an excess contribution. Please verify on your 2021 return that you didn't pay the 6% penalty.

On your 2022 return delete the entry for the excess contribution from prior years:

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 entry

[NedTaxBux]

Thank you for the reply

For 2021, I did not withdraw the excess so I paid the extra 6pct tax.  
for 2022, I am withdrawing the excess completely. 
this is why I am getting prompted by TT software. It thinks I have excess but I am removing withdrawing it this year.   

I understand I can carryover the excess and apply to this year 2022 but I don’t want to do that.  

What I don’t know is how to resolve the errors that TT thinks I have. I want to put $0 excess because I know I am removing it from that Roth.  1099 has codes J and P to indicate excess and removing excess from prior year. 

thank you again for your responses. 

[DanaB27]

Can you please clarify when (date) exactly you removed the 2021 excess? And to confirm you received a 2022 Form 1099-R with codes J and P?

@NedTaxBux 

[NedTaxBux]

Thank you again for the reply. 
I have a check on the way from the Roth provider. Confirmed check on the way this tax year 2021 on Monday. (4/17/2023)

I have not received a 1099-R.

Since the transaction is recent, there has been no time to get a developed 1099 from Roth provider.  

In doing research on this. I anticipated that I would need the J and P codes to tell that a) there was excess contributions recognized from 2021 and b) I’m taking the excess out. 

[DanaB27]

Thank you for the clarification. You will get a 2023 Form 1099-R with code J (code T or Q if you are over 59 1/2) since this is a regular distribution (without earnings and losses since you took a distribution after the 2021 extended due date). This 2023 Form 1099-R will be reported next year on your 2023 tax return. You do not enter a Form 1099-R for this distribution on your 2022 tax return. You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. 

Did you make any IRA contributions for 2022? If not and you are allowed to make contributions then the excess is automatically absorbed on our 2022 tax return.  If you cannot make a contribution for 2022 then you have an excess for 2022 since it wasn't removed by December 31, 2022, and you will have to pay again the 6% penalty in 2022. But the message you are getting seems to indicate that you can make an IRA contribution for 2022 therefore you will need to enter $4,140:

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 enter the total excess contribution from 2021 (if it wasn't carried over).
6. On the "How Much Excess to 2022?" screen enter $4,140.

[NedTaxBux]

thank you again for this reply

I did not make any contributions in 2022. 

TT is trying to absorb the amount allowed to be a contribution for 2022.  would it be better to cancel the check payment from Roth and just absorb it into 2022?  pay whatever taxes and then figure it out later.  My problem is I’m running out of time to execute or cancel the check payment if the excess. 

I think I understand your statement that if it was “excess contribution” I can take it out tax and penalty free.  That is a concept I did not understand.  Which was why I put in a fictitious 1099. 

I’ll take out the fictitious 1099 entry and see what happens.  thank you again for this information!

[DanaB27 · Accepted solution]

Yes, it might be better to see if you can cancel the Roth distribution since it seems that your excess is getting absorbed in 2022 (you can check Form 5329 line 24 for any remaining excess). If you have an excess contribution left on line 24 of Form 5329 then you can request a regular distribution of that amount by December 31, 2023, to avoid having the 6% penalty on your 2023 tax return.

[NedTaxBux]

Yes thank you again for this reply. 

I canceled the withdrawal and had the initial input re classified as a partial contribution for 2021 and the remainder for 2022.  I still had some excess in 2022 but just paid the tax on it for this tax year since it was small amount.  

I plan to see for next 2023 tax if I can push the remainder of excess into 2023 too but that remains to be seen.  Otherwise I might just withdraw that amount later this year (sooner rather than later so no gains are realized). 

I hope this thread is helpful to others that excess Roth contributions can be reclassified or pushed to the following tax year.  Just coordinate with the service you use to administer the Roth to do so. 

thank you again for your insight Dana. It was very helpful.