Reporting excess Roth IRA Contribution

[olsontf]

In this situation you describe where we create a 1099-R using code P and J, and also include box 1 as our total distribution, and box 2a as our earnings... what if the next year we receive the 1099-R and box 1 and 2a report the total distribution and don't break out the earnings separately in box 2a (because they don't know what is taxable and what is not)?  Does that mean that next year we will have to amend this year's tax return and then somehow reflect our taxable amount as only the earnings (I assume somewhere on the 8606)?

[DianeW777]

No, you will not amend your 2021 tax return.  It will be handled as indicated here and in previous guidance.

It's quite likely you will receive a Form 1099-R in 2022 if you actually removed the excess in 2022 before filing your 2021 tax return. As indicated by @DanaB27 you must report those earnings in 2021 (with or without a Form 1099-R). Use code 8, in Box 7.

• 8 – Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021

Next year, when you receive the Form 1099-R for this same distribution, there should be a code P, which will show that the distribution was already included and taxed in your 2021 tax return. The result should be nothing taxable in 2022.

• P – Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021 (it will be changed from 2020 to 2021 for 2022 tax year)

@olsontf

[olsontf]

@DianeW777  thank you for your response.  Let me clarify the question.  I'm creating a 1099-R for my 2021 tax return with code P and J, as discussed, to reflect a 2022 removal of a 2021 excess Roth IRA contribution.  I also input the total distribution in box 1 (contribution plus earnings), and then just earnings in box 2a (the original contribution was nondeductible) as previously discussed.  So the taxable amount (w/ a 6% penalty) should only be reflected in box 2a.  However, my brokerage won't know this information, so I am assuming that next year they will put my total distribution in both box box 1 and 2a.  Since I am creating a 1099-R this year that will likely look different from the 1099-R they send next year, would that mean I would need to amend my 2021 return?  The problem right now is that if I put the total distribution in both box 1 and 2a on the 1099-R I am creating, there's no other way to reflect that only a portion of this amount is taxable (and subject to penalty).  Thank you!

[DianeW777]

No, there will be no amendment for 2021 upon receipt of the 1099-R for 2022.  You are handling this now, as you should. 

Unless this was an excess contribution in 2020, that was removed late in 2021 (past the filing deadline, plus extension), then code P is not applicable. That code is strictly for an excess in 2020 that was not withdrawn on time.  If this is the case please clarify here. If you removed an excess for tax year 2021, then use code 8 as indicated.

Enter in Box 2a only the earnings which is what is taxable in 2021.  If you removed the excess on time there is no excise penalty of 6%. However if you're under 59 1/2, the government will also charge you a 10% early withdrawal penalty on any earnings you withdraw. This will trigger Form 5329 in TurboTax because of the age (if you are under 59 1/2).

• If you catch your mistake before the tax filing deadline for the year, AND you remove the excess before you file your taxes, there is no 6% penalty.  You have to remove your excess contribution and any earnings attributable to that excess contribution. 

Using the correct code in 2022 should eliminate any taxation of the distribution in 2022.

[Harvest704]

I have the similar situation,  but I did not have a gain. I had a loss. I invested 7,000 in my ira in 2021 and was not eligible. I removed the distribution this year 2022. After my loss, I received $6700. Is the gross distribution still 7000 in box one? Or is it 6700? Do I put a negative number in box 2a for loss or zero?  Also, do I use both codes 8 and J or just 8? Thanks.

[DaveF1006]

@Harvest704 No, just report it as $7000 in both Box 1 and lave 2A blank. Use code 8-return of contribution taxable in 2021 and it won't be reported as a taxable distribution.

[Anonymous]

I'm in a similar situation to Harvest 704 above - understand I should use code 8 since my excess contribution for 2021 was removed Jan 2022 (and my 2021 taxes are not yet filed). I also did not have any capital gains, only a loss. In this case, should I also file a substitute 1099-R since I won't get the actual 1099-R form until Jan 2023? I assume not, but wanted to double-check. 

[DanaB27]

No, you will use code J and P for an 2021 excess Roth contribution that was removed in 2022. Code 8 is used if a 2021 contribution is removed in 2021.

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options: 

• You can wait until you receive the 1099-R  2022 in 2023 and amend your 2021 return or
• You can report it now in your 2021 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 2022 1099-R 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 in 2022 tax return but the withholding will be applied to 2022.

To create a 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 minus loss)
7. Box 2a enter $0
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.

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.

@Anonymous

[Anonymous]

This contradicts the previous reply in the thread which says to use code 8, and not code P and J.

I would prefer to deal with this now (before filing my 2021 return), so I would like clarification as to which code I should be using. Also, assume once the code is figured out, I do not file a substitute 1099-R for 2021.

[FangxiaL]

Here are what codes 8 and P mean:

8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2022.

P—Excess contributions plus earnings/excess deferrals taxable in 2021.

If you prefer to handle it now, enter the excess contribution(total distribution in Box 1) and earnings (only earnings in Box 2a) (if you can separate the earnings portion) as if you have received the 1099-R form (you will receive in next January), the proper distribution code should be JP (your 2022 1099-R will say so).

For your 2022 taxes, you can ignore the 1099-R that you will receive in January 2023, unless you have federal or state income tax withheld.

2020 Instructions for 1099-R.

@Anonymous

[Anonymous]

Sorry - I am confused. My excess contributions to my Roth IRA were made towards the end of 2021, but the removal of excess contributions (plus earning/loss) was in 2022. Does this not make "earnings" taxable in 2022 (which is why the form would be mailed in 2023)? In my case, my excess contribution was $870, but as I had a loss, only about $750 was returned by the financial institution where I have my Roth IRA. So, for 2022, it works out that I should not have any taxable income on the earnings, since this is a loss, right? For 2021 tax filing, following your instructions above, I'm filing in the 1099-R as if I have it, so for box 1, do I put $870 or $750? For 2a, I assume I put 0 or leave blank. For box 3 (the capital gain box), since I know I cannot enter a negative number, do I put 0 or leave blank? And for the codes, I use P and J (which means it's taxable for 2021)?

[FangxiaL]

Do not enter anything in your 2021 taxes if you withdrew excess Roth before the due date of your 2021 tax return if you had a loss on the excess contribution.

Since there is a loss on the excess contribution, Box 2a should be $0.00. Reporting these $0 earnings has no impact on your 2021 tax return at all. If you wait till next January for the actual Form 1099-R to arrive, there is nothing to amend for your 2021 tax return either because there was no earnings and no 10% penalty applies.

You can just ignore the 1099-R next year unless there are federal and/or state income taxes withheld. The JP code tells IRS that the 1099-R is the withdrawal of an excess contribution from a Roth IRA by the due date, and the zero in Box 2a tells the IRS there is no income to report. 

@Anonymous

[Harvest704]

Sorry, I didn't mention that this IRA excess contribution that I had a loss on was from a tradional IRA not a roth. Would I still not need to report it due to having a loss? Does it make a difference if it is roth or tradional? Thanks

[DanaB27]

Yes, you would still report it but it won't be taxable since only the earnings are taxable when you withdraw an excess contribution.

Since you had a traditional IRA your codes in box 7 will be  P and 1.

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

1. Login to your TurboTax Account 
2. Click on the Search box on the top 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 minus loss)
7. Box 2 enter $0
8. Box 7 enter P and 1 

9. Check the "IRA/ SEP/ SIMPLE" box

10. Click "Continue"
11. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.

If you report it now on your 2021 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 2022 1099-R 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 in the 2022 tax return but the withholding will be applied to 2022.

[Edited 2/21/2022 | 11:20am PST]

@Harvest704

[Harvest704]

Thank you for your help!