Excess Roth Contribution

[FangxiaL]

It sounds like you recharacterized your excess Roth IRA contribution.

There are three ways to handle excess Roth IRA contributions:

• Withdraw your excess contributions
• Recharacterize your excess contributions
• Apply your excess contributions to a future year. 

Since this is done by the due date for filing your 2021 tax return (including extensions), you can treat the contribution as made to the Traditional IRA for 2021 (effectively ignoring the contribution to the Roth IRA). If your Traditional IRA is not deductible, make sure to enter the contribution to TurboTax so that Form 8606 can be generated to track the basis in your Traditional IRA. 

@dmtbue

[dmertz]

The fact that the returned contribution was used to fund a 2022 contribution has no effect on the 2021 tax return.  It's equivalent to the distribution being paid to you in cash and you using that same amount of cash to make a new contribution.  You just need to make sure that you understand that the amount contributed for 2022 is the gain/loss amount distributed for the return of contribution, not the amount of contribution returned (unless there was no gain or loss, in which case the amount distributed equals the amount returned).

[canes]

I am new to Intuit and have 2 questions:

1. I made excess Roth contributions in 2021 and also this year, 2022. I made the max contribution of $7,000 for 2021 and also 2022. Last month I contacted my company Vanguard and withdrew all the excess contributions plus a small amount of earnings. Total withdrawn was $14,300. a $600 gain in 2021 and a $300 loss in 2022. I want to take care of it now before the filing deadline, so do I need to create a 1099-R for 2021 and another for 2022?

2. Where do I get the TIN for Vanguard? I cannot get thru the phone line due to high volume. 

Thanks for your help

[DanaB27]

1. Yes, you will create a Form 1099-R with codes P and J for the withdrawal of the 2021 excess contribution and earnings if you want to avoid amending your 2021 tax return when you get it in 2023. Please be aware if you have tax withholdings on the 2022 Form 1099-R with codes PJ then you must enter the form into the 2022 tax return since the withholding is reported in the year that the tax was withheld. The 2022 code P will not do anything to the 2022 tax return but the withholdings will be applied to 2022. 

No, you do not need to create Form 1099-R for the withdrawal of the 2022 excess contribution and loss. You will get a 2022 Form 1099-R with codes 8 and J and this will go on your 2022 tax return.

To create a Form 1099-R in your 2021 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

2. You will have to contact Vanguard for the TIN. Maybe you can use a contact form in your account and get a faster, written response? 

@canes

[canes]

Thank you so much for clarifying my excess Roth situation. Now my biggest issue is obtaining the Vanguard TIN. Thanks for the tip, I will try to messge them in some fashion other than phone.

[canes]

Your advice was so very helpful. I have completed my return and I have one more question:

Since I withdrew excess Roth contributions, made my own 1099-R and wrote a note in the "explanation" section of Turbo Tax  that I am doing this to avoid an "amended" return, can I file online or does my return need to be mailed?

I ask because I have read some online posts that suggest  tax  returns with letters of explanation must be mailed.

Or is that only if I have a separate "hard-copy" letter that I created? Thank you for your reply

[macuser_22]

---

@canes wrote:

Your advice was so very helpful. I have completed my return and I have one more question:

Since I withdrew excess Roth contributions, made my own 1099-R and wrote a note in the "explanation" section of Turbo Tax  that I am doing this to avoid an "amended" return, can I file online or does my return need to be mailed?

I ask because I have read some online posts that suggest  tax  returns with letters of explanation must be mailed.

Or is that only if I have a separate "hard-copy" letter that I created? Thank you for your reply

---

You do not need to attach anything and can e-file.  The only thing to goes to the IRS is the 1040 line 4a & 4b information and a 5239 form for the 10% penalty on the box 2a earnings, if any, if under age 59 1/2. 

The internal TurboTax statement for a code P 1099-R will be part of the e-filed tax return.

[Crumpcake]

I contributed excess to my Roth in 2020 but caught it before filing my 2020.  I reported it on my 2020 return, but did not receive a 1099R  until this year that says 2021 from my broker.  Do I need to report again.  When I do, Turbo Tax says to amend 2020 return, but I already had reported it.  Can I just ignore the 2021 1099R or will return be rejected? Thanks

[DanaB27]

Yes, if you had created a Form 1099-R with code PJ on your 2020 tax return when you filed it then you can ignore the 2021 Form 1099-R with code PJ unless you had tax withholdings. If you had withholdings then you must enter the 2021 Form 1099-R into the 2021 tax return since the withholdings are reported in the year that the tax was withheld. The 2021 code P will not do anything to the 2021 tax return but the withholdings will be applied to 2021.

@Crumpcake

[shiyi11]

Thank you so much for this post. This is the most useful post I can find on the internet regarding this issue. A lot of websites tells you how to remove excess contributions and the consequences, but don't say anything about how to report it to IRS.

https://github.com/yinshiyi/excess_ira/tree/main#readme

I have a question about my third row attached here.

excess contribution period	contribution count towards	removal of excess contribution by early distribution	what to do
2022/1/1-2022/12/31	2022	2022/1/1-2022/12/31	1099-R 2022 will arrive in 2023 Jan, file normally, the Net income attributable (NIA) is defined as taxable for 2022
2022/1/1-2022/12/31	2022	2023/1/1-2023/4/18	make a 1099-R for 2023 with code P/J in box 7，don’t report this excess on 2022-8606 (since we took it out by 4/18, report in 1040 4a, 4b for taxable gain on NIA, additional 10% penalty tax on NIA report on Schedule 2 (Form 1040), line 8, (5329 Line1 is optional according to below); when real 1099-R 2023 arrived, file that on 1040-2023 (get the withholding tax back? since 10% penalty is paid already on 2022 tax)
2023/1/1-2023/4/18	2022	2023/1/1-2023/4/18	1099-R 2023 will arrive in 2024 Jan, the NIA gain from this type of contribution is taxable in 2023 tax (or 2022 tax?).  I think one has to make a 1099-R also, but cannot use code P/J in this case.  I believe the code is 8/J
2023/1/1-2023/12/31	2023	2023/1/1-2023/12/31	1099-R 2023 will arrive in 2024 Jan, the NIA gain from this type of contribution is taxable in 2023 tax

the interpretation of 590-B is not very explicit in my opinion

instruction from 590-B

Withdrawals of contributions by due date. If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.

5329 instruction excerpt

You received a distribution subject to the tax on early distributions from a qualified retirement plan (other than a Roth IRA). However, if distribution code 1 is correctly shown in box 7 of all your Forms 1099-R and you owe the additional tax on the full amount shown on each Form 1099-R, you don’t have to file Form 5329. Instead, see the instructions for Schedule 2 (Form 1040), line 8, in the Instructions for Form 1040, or the Instructions for Form 1040-NR, for how to report the 10% additional tax directly on that line.

8606 instruction excerpt

You include $1,073 on your 2021 Form 1040, line 4a, and $73 on line 4b. You attach a statement to your tax return explaining the distribution. Because you properly removed the excess contribution with the related earnings by the due date of your tax return, you aren’t subject to the additional 6% tax on excess contributions, reported on Form 5329. However, because you were under age 59½ at the time of the distribution, the $73 of earnings is subject to the additional 10% tax on early distributions. You include $7.30 on Schedule 2 (Form 1040), line 8.

[DanaB27]

Technically, a contribution made for 2022 between January 1 and April 18th, 2023 is deemed to have been made on the last day of 2022. Therefore, when you withdraw the excess contribution for 2022 plus earnings in 2023 before the extended due date you should receive a 2023 Form 1099-R with codes P and J. This would be reported on your 2022 tax return. But you might want to check with your custodian since some financial institutions issue a 2023 Form 1099-R with codes 8 and J when the contribution was made between January 1 and April 18th, 2023 for 2022. This would belong on your 2023 tax return.

Please be aware, "Beginning on December 29, 2022, the 10% additional tax on early distributions will not apply to a corrective IRA distribution, which consists of an excessive contribution (a contribution greater than the IRA contribution limit) and any earnings allocable to the excessive contribution, as long as the corrective distribution is made on or before the due date (including extensions) of the income tax return." (Instructions Form 5329)

In regards to the second row:

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2022?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

@shiyi11