Reporting excess Roth IRA Contribution

[fluxquantum94]

Hello, really appreciate the thorough step by step walkthrough. I understand now that I will need to create a new 1099-R, but the only confusing thing is that I had received a 1099-R marked for tax year 2021 with codes 'PJ' already due to an excess contribution removal I did for tax year 2020. So I got confused due to that overlap. But to make sure I understand, I essentially need create and fill out my own/additional 1099-R but label it tax year 2022? Thanks again for your time.

[DanaB27]

Yes, you will create a 2022 Form 1099-R with codes PJ for the removal of the 2021 excess contribution plus earnings in 2022 and enter it on your 2021 tax return.

If you had also an excess contribution in 2020 that you removed in 2021 and received a Form 2021 1099-R with code PJ then this Form has to be entered on your 2020 tax return if you haven't reported it before. Please see How do I amend my 2020 return?

@fluxquantum94

[bucks2145]

Hello!  I recently removed an excess contribution of $3200 for tax year 2021. Vanguard automatically calculates and removes the earnings associated with this. Additionally, I did have 30% Federal and State tax withheld from the earnings, which was deducted from my distribution back to me.

From reading these messages, because of the additional portion of withholding that complicates things. Is the appropriate path forward to disregard creating a1099-R for tax year 2021 (now), receive a 1099-R at the end of tax year 2022 (since the removal occurred in calendar year 2022), and file and amended 2021?

Thank you!

[DanaB27]

Yes, if you wish you can wait until you get the 2022 Form 1099-R next year and then amend your 2021 tax return instead of creating a Form 1099-R now.

You will have to enter this 2022 Form 1099-R on your 2021 and 2022 tax returns because you had tax withholdings. The earnings will be taxable in 2021. The 2022 code P will not do anything in the 2022 tax return but the withholding will be applied to 2022.

@bucks2145

[bucks2145]

Thank You. I would prefer to not have to go back next year and amend 2021, if I possible. I thought because of the withholding entry, there wouldn't be any way around that.

[ronr32]

I have read through the entire thread – many thanks to all contributors! This is my situation and intended actions….do I have this correct and please see my questions below.

I have not submitted my 2021 tax return. I have excess ROTH contributions made during 2021.

This is what I intend to do……

Enter information into TurboTax of my $7,000 contribution made on Jan 7 2021

Minimal 2021 earned income resulted in $6,498 being an excess 2021 Roth contribution

There is a Roth LOSS from 1/7/21 until date excess contribution withdrawn 3/14/2022 based on IRS’s NIA (net attributable income) formula

Under Personal/Deductions & Credits / Traditional and Roth IRA Contributions I will follow the TurboTax steps

                Select Roth IRA

                Enter $7,000 as Roth Contribution for 2021

                Tell us if you contributed more to a Roth IRA than was allowed in 2021 – YES

                Your excess Roth IRA contributions – enter $7,000

                Roth Value on 12/31/2021 -  enter $< value>

                You have an Excess contribution of: $6,498

                Contribution withdrawn before due date of you return  - NOT CLEAR ON WHAT AMOUNT TO ENTER??? QUESTION: is the withdrawn amount the Net figure = total contribution less the Roth loss based on the NIA formula ($6,498)? OR the total contribution of $7,000??? I assume the net figure, but it is not clear to me based on the Turbotax question posed.

The above turbtax prompts precede entering the 1099-R as indicated below. This discussion thread does not seem to address the above trubotax prompts.

I will Manually submit a “2022 1099-R” with my 2021 return consisting of the following:

                Box 1 enter $6,498

                Box 2a enter $0

                Box 7 enter J and P

QUESTION: is the foregoing correct?

[macuser_22]

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@ronr32 wrote:

I have read through the entire thread – many thanks to all contributors! This is my situation and intended actions….do I have this correct and please see my questions below.

I have not submitted my 2021 tax return. I have excess ROTH contributions made during 2021.

This is what I intend to do……

Enter information into TurboTax of my $7,000 contribution made on Jan 7 2021

Minimal 2021 earned income resulted in $6,498 being an excess 2021 Roth contribution

There is a Roth LOSS from 1/7/21 until date excess contribution withdrawn 3/14/2022 based on IRS’s NIA (net attributable income) formula

Under Personal/Deductions & Credits / Traditional and Roth IRA Contributions I will follow the TurboTax steps

                Select Roth IRA

                Enter $7,000 as Roth Contribution for 2021

                Tell us if you contributed more to a Roth IRA than was allowed in 2021 – YES

                Your excess Roth IRA contributions – enter $7,000

                Roth Value on 12/31/2021 -  enter $< value>

                You have an Excess contribution of: $6,498

                Contribution withdrawn before due date of you return  - NOT CLEAR ON WHAT AMOUNT TO ENTER??? QUESTION: is the withdrawn amount the Net figure = total contribution less the Roth loss based on the NIA formula ($6,498)? OR the total contribution of $7,000??? I assume the net figure, but it is not clear to me based on the Turbotax question posed.

The above turbtax prompts precede entering the 1099-R as indicated below. This discussion thread does not seem to address the above trubotax prompts.

I will Manually submit a “2022 1099-R” with my 2021 return consisting of the following:

                Box 1 enter $6,498

                Box 2a enter $0

                Box 7 enter J and P

QUESTION: is the foregoing correct?

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*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2021 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal Roth distribution but as a return of contribution with a code "JP" in box 7 - then:

You can just report it now 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 also 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 JP will not do anything in 2022 but the withholding will be applied to 2022.

You would enter the 1099-R with the total distribution in box 1 (the contribution plus the earnings),

The earnings in box 2a,

Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2019 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2022 1099-R. - That makes it taxable in 2021 and not 2022

After the 1099-R summary screen press continue.

If you are over 59 1/2 then on the "Lets see if we can lower your tax bill" enter the box 2a amount in the "Another Reason" box to eliminate the 10% early withdrawal penalty on the earnings.

Enter the explanation for the excess contribution and that you are reporting a 2022 1099-R on your 2021 tax return to avoid having to amend in 2022.

The box 2a earnings will be taxable income reported on line 4b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form that will be reported on line 59 on the 1040 Schedule 4 form.

[ronr32]

Thanks - I have seen that response previously. I need answers to my two specific questions.

[macuser_22]

What are your two questions that were not answered?

The amounts - box 1 is the amount of excess plus any earnings attributed to the excess, box 2a is the earnings attributed to the excess.    Those number come for the IRA custodian.   What else are you asking?

[ronr32]

Here is the first question.... updated to be a bit more clear:

My first question is in regard to responding to TurboTax questions ....not a form...so there is no "Box 1" reference, just a question posed by TurboTax when it determines I made an excess contribution....

Under Personal/Deductions & Credits / Traditional and Roth IRA Contributions I follow the TurboTax steps to report my Roth contribution:

                Select Roth IRA

                Enter $7,000 as Roth Contribution for 2021

                Tell us if you contributed more to a Roth IRA than was allowed in 2021 – YES

                Your excess Roth IRA contributions – enter $7,000

                Roth Value on 12/31/2021 -  enter $< value>

                TurboTax states: You have an Excess contribution of: $6,498

                Contribution withdrawn before due date of you return  - NOT CLEAR ON WHAT AMOUNT TO ENTER??? QUESTION: is the withdrawn amount the Net NIA formula figure = total contribution less the Roth loss? OR the total contribution of $7,000 OR the excess amount computed by Trubotax ($6,498)??? I assume the NIA net figure, but it is not clear to me based on the Turbotax question as posed - It would be helpful if the question posed by Turbotax specifically stated the withdrawal is based on the IRS's NIA formula which factors in any gain or loss produced by the excess contribution - if that is the intent of the question.

[ronr32]

Second question....my Roth experienced a LOSS that is attributable to the excess contribution, your response speaks of a GAIN. Does that change your response to my question in any way? Thanks!

[DanaB27]

Please, do not enter the $7,000 on the “Enter Excess contribution screen” unless you had in 2020 or prior years an excess contribution that wasn’t removed.

For the field withdrawn by the due date, you will enter the full contribution amount of $7,000 (even if you received less because of the loss).

You will get a 1099-R 2022 in 2023 with codes P and J for the withdrawal of excess contribution with no 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 with the loss 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.
11. Click "Continue" after all 1099-R are entered and answer all the questions.

@ronr32

[vxn2633]

Dana,

Just wanted to say a HUGE Thank You for all the help you've provided to the community here. I noticed you had provided guidance in many other tax related questions in other threads as well. Hopefully it doesn't seem like a thankless job (I know you likely type the same thing over and over to many folks so really appreciate your patience).

Just wanted to let  know you saved me a lot of headache and confusion with this. I will try to pay it forward in my own profession.

[ronr32]

Thank you for the clarification and providing the appropriate steps that should be taken. Much appreciated!

[mrmadara999]

Want to echo what others are saying Dana.  In the last 24 hours, I have been on two failed phone calls with TT experts on this topic...neither knew what to do.  Your clear answers on these excess contribution questions are an absolute lifesaver.  Please know your efforts are seen and appreciated!