How/where to report Excess contribution EARNINGS withdrawal in TurboTax 2023

[radzik]

I made an excess contribution to a Roth IRA in 2023 and only now in January 2024 realize that my income was over the limit for Roth contributions in 2023, so I just withdrew the contribution and earnings.  Because I did this before April 15, there will be no penalties on the withdrawn contribution but I have heard different things about the withdrawn earnings.  One person said that I will need to pay income tax and a penalty on the withdrawn earnings.  Another person said that a new law passed in early 2023, Secure 2.0, eliminates the penalty on the withdrawn earnings and that I just need to report the earnings on my 2023 return, even though they were withdrawn in 2024.  I was told I will get a 1099-R for the withdrawal but not until a year from now in 2024.  I don't know where to report the earnings in Turbotax.  The retirement income portion doesn't give me an option because I don't yet have a 1099-R (and won't until next year).  Can anyone help with this?  Thanks.

[DavidD66]

Any investment earnings your excess contributions generated while in your account will have to be reported on your taxes as income in the year you made the contributions to your IRA. In other words, you will have to report the earnings on your 2023 tax return.  You will receive a Form 1099-R for the 2024 distribution in 2025.  You can wait until you receive the 1099-R and amend your 2023 return.  Or you can go ahead and enter it on your 2023 tax return.  To create a 1099-R in your 2020 return please follow the steps below:

1. Open your return
2. Click on the "Search" on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning)
6. Box 2 enter the earnings
7. Box 7 enter P and J 
8. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

The withdrawal of earnings on excess contributions is no longer subject to the 10% excise tax (penalty) for early withdrawal. 

[fanfare]

@DavidD66 

If you enter code P it's not going to work because P is for prior, and that would be 2022.

You correctly said it should go on your 2023 tax return.

cc: @radzik 

[fanfare]

@radzik 

I think he meant 2024 not 2021.

If you have that option, that would make your  P 1099-R for 2023

[radzik]

Thanks David.  If I wait until I get the 1099-R next year and amend the return for 2023 to add the income from the earnings, won't I owe the IRS a years's interest on the earnings because I didn't pay the tax on the earnings in 2023 until 2025?

The other responder wrote that I shouldn't check off P because that would indicate that the earnings were from a year prior to 2023.  Could you confirm that?  What does "J" indicate?  Thanks both of you for your help.

[radzik]

I'm sorry.  I'm a little confused.  Do I check off both P and J or just J?  (It sounded at first that you meant the latter.)  Does whether I type in the P depend on whether I wait until next year when I get the 1099-R for 2023 and amend the 2023 return to add the earnings in 2023 or whether I go ahead and type in my own 1099-R now on the current return due in April? Thanks.

[radzik]

The last question was for fanfare but either or both of you can answer.  Thanks.

[fanfare]

If you wait till next year 2025 and get a P, TurboTax will instruct you to amend your 2023 tax return.

You avoid all that hassle by including the earnings on Line 4b now.

J means early distribution.

if you do it now you should not have a form 5329 attached.

Nobody wants to amend if they can avoid it.

@radzik 

[RMB2023]

I'm in the exact same position as @radzik - overcontributed to Roth IRA in 2023, then timely corrected in Jan 2024 (before 2023 filing deadline), and now need to report earnings in 2023 AND I wish to avoid amending my 2023 return in the future.

1) What I have gathered from above threads is to create a 1099-R for tax year 2024 with P and J designations.  The P designation is prior year (from 2024), so that would be 1099-R for 2023 as @fanfare  stated, is that correct?

2) This should also prevent the need to file form 5329, correct?

3) Lastly, how do I answer the IRA question interview?  Do I state zero IRA contribution or state the over-contribution amount? 

Thank you.

[RMB2023]

@radzik @fanfare @DavidD66 

After some further research, I don't see an option in TurboTax to use the P designation for tax year 2023 or 2024 when attempting to create a 1099-R.  However, I don't think it is necessary  to create a 1099-R for those of us who withdraw excess contributions & earnings in a timely manner (before the tax deadline)., based on IRS Pub 590-A:

"Don’t include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both of the following conditions are met.

• No deduction was allowed for the excess contribution.

• You withdraw the interest or other income earned on the excess contribution."

Therefore, I think I can bypass the IRA retirement contribution interview question by simply answering "No" and moving on.  The only issue then is how to report excess contribution earnings? (I'm still researching).

[DawnC]

To report the excess earnings, you need to enter the 1099-R you are going to get next year, now.   In box 7, enter the P code.   Ignore the taxable in 2022 description, as you will get a follow-up question; tell TurboTax this is a 2024 form 1099-R.   The P will make the earnings taxable on this 2023 return.   The earnings will be on line 4b.   

If you report it now in your 2023 return, you can ignore the 1099-R when it comes next year in 2025, unless the form has any withholding.   Then you must enter the 2024 1099-R into the 2024 tax return, since the withholding is reported in the year that the tax was withheld.   The 2024 code P will not do anything in 2024 tax return, but the withholding will be applied to 2024 return.

[fanfare]

"how to report excess contribution earnings?"

The purpose of the procedure outlined above is to do exactly that.

Also, to put the distribution amount on your 2023 tax return, as required.

as you can see from the thread there was some discussion about code "P"

Instead,

Use these settings.

2023 1099-R with code "8".

put a checkmark in the IRA/SEP/SIMPLE box.

do not mark the "taxable amount not determined" box.

box 1 - distribution amount

box 2a -  taxable earnings.

You may also find that TurboTax requires the custodian TIN.

You can use this number if you don't have another 1099-R to refer to.

22-1211670

@RMB2023 

[RMB2023]

That did the trick! Thanks to both @DawnC and @fanfare for helping me navigate this tricky 2023 1099-R creation.  I did end up using the P code as @DawnC suggested and was able to select year 2024, otherwise I used the settings described by @fanfare . I did happen to know my custodian's TIN, so used that.  Finally, my form 1040 lines 4a and 4b correctly match values disclosed in my excess withdrawal custodian letter. And, as expected, I pay a bit more tax, but I'm happy to have this corrected.

Thanks for all your help! 

RMB2023

[fanfare]

The P solution and the 8 solution differ in the setting of the IRA/SEP/SIMPLE box.

If you don't set the IRA/SEP/SIMPLE box you need code 8J.