Reporting excess Roth IRA Contribution

[macuser_22]

It makes no difference which code goes in which box.

[gkp1000]

Hi @DanaB27 

First thank you for all your support your giving!!!

I'm hoping you can help me.  I read all your posts but I'm still not sure.

I put 6,000 in a traditional IRA in 2021.  I just found out I have no earned income so it is in excess.  My bank is in the process of withdrawing the contribution and earnings and it will hopefully happen before the 18.  I have not filed yet.  I dont think they will generate a 1099-R for me that quickly but they will tell me the earnings and probably other things if I know to ask them after they put it though in a couple of days.

Its my understanding that since I am not claiming a deduction and that I am withdrawing the contribution and earnings, that I only need to pay tax on the earnings as gross income (which I might not even have any earnings or they are like 100$ at most).  Im 40 years old if that matters.

How do I put the earnings in as gross income?  Through a dummy 1099-R.  Is that the best option.  Please explain for my situation in simple detail.

Also in "deductions and credits", since I will have already withdrawn the contribution and I'm not getting a deduction  do I put that I contributed to a 2021 Traditional IRA,  6,000$?  I feel like not, but I'm not sure.

I'm also unsure do I fill out a form 5329 or do I just do a mock 1099-R.

I would love to get it all over and done with, please give me in simplest most straight forward terms direction.  Ive been floundering for ages trying to figure it out and am afraid to make a mistake.

Also is it an option to not fill out anything as far as IRA, as long as my bank withdraws it and then wait on the 1099-R ill get nest tax year, I'm not so concerned about the 100 earnings being hit with 10 or 6 percent or losing it all as long as, it doesn't upset the IRS and  my withdrawn contribution isint getting hit with any penalties.

THANK YOU SO MUCH!!!

[DanaB27]

Yes, you will enter the traditional IRA contribution but enter the excess contribution amount as withdrawn by the due date on the penalty screen.

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Enter the contribution amount without earnings and losses as withdrawn by the due date on the penalty screen

If you withdrew a 2021 excess contribution plus earnings in 2022 before the due date, then you will get a 2022 1099-R in 2023 with codes P and 1. 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 2022 1099-R 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 to the 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 plus earning)
7. Box 2 enter the earnings
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.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. 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")

@gkp1000

[fluxquantum94]

Hello, I have a frustrating predicament. I had an excess contribution for tax year 2020 and I withdrew the excess contribution in 2021 to be just the exact amount I was calculated to be in excess by (I let my brokerage firm sort out calculating the losses or earnings). This year (2022), I received the 1099 dated for 2021 but it applies to tax year 2020. It had reported a gross amount which includes the excess contribution plus earnings.

I proceeded to amend my 2020 tax year forms but noticed that turbo tax calculated that I still owe a 6% penalty on excess contributions. I am guessing right now that since I had earnings, it got added as additional income and therefore the excess amount I removed initially was based on total income before the earnings was calculated and then reapplied with this amendment.

May I get some clarity if this calculation is correct? I otherwise fear that I have put myself in a far more complicated tax situation just because I didn't know what exact amount I needed to withdraw. There isn't an easy way for me to figure out in advanced if I lost or earned money (I didn't know I needed a 1099-R at the time).

Will I need to make another withdraw and apply it to the 2020 tax year?

Thank you for your time.

[DanaB27]

Yes, the earnings are taxable in 2020 and therefore can create a new excess contribution. You will have to pay the 6% penalty on this new excess contribution in 2020 and 2021 since it wasn't removed by December 31, 2021.

You can avoid the 6% penalty for 2022 by making a regular distribution (without earnings and losses) since it is after the due date of the 2020 tax return. You will enter this distribution on your 2022 tax return when you get the 2022 Form 1099-R next year.

To pay the 6% penalty for 2021:

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 new excess contribution from 2020

@fluxquantum94

[fluxquantum94]

Thank you for your expedient response. I unfortunately already electronically filed my taxes yesterday when I realized this oversight.

Can I immediately amend the return I just sent out?

So basically my earnings counts as an excess contribution as well?

To pay the 6% on the excess contribution, am I doing that in the amended 2020 tax year return and the 2021 tax year return as well? I'm confused because I had separate contributions in tax year 2021 as well, so do I combine those amounts?

To avoid this tax 2022 year's penalty can I do the following?

1) Withdraw the excess contribution before the this year's filing deadline - this is what you mean by "making a regular distribution"?

[DanaB27]

You have to wait until your original return has been processed before you can amend your 2021 tax return.

Yes, the earnings from the excess contribution increase your 2020 MAGI and therefore trigger a new excess contribution on your 2020 tax return. Please make sure that you entered the original excess contribution amount (no earnings or losses) as withdrawn by the due date on the penalty screen. Then TurboTax will only calculate the 6% penalty on the new excess contribution.  

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"

On your 2021 tax return, you will enter your Roth contribution for 2021 and enter the excess when asked:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter your Roth contribution for 2021
5. Continue until the "Do you have any Excess Roth Contributions" screen and answer "Yes"
6. On the "Enter Excess Contributions" screen enter the new excess contribution from 2020

To avoid the 6% penalty on the new 2020 excess contribution on your 2022 tax return you will have to remove the new excess by December 31, 2022. You only need to withdraw the excess (without earnings or losses). For example, if your new excess is $200 then you need to just withdraw $200 as a regular distribution (you do not request the withdrawal of an excess contribution). You will get a 2022 Form 1099-R with code J (if you are under 59 1/2) and report it on your 2022 tax return. 

@fluxquantum94

[fluxquantum94]

Hello Dana, appreciate the extra information. In 2021 for tax year 2020, I did withdraw my excess contribution before the tax deadline in 2021. I had requested an extension to give myself time to do so and reported 0 excess ROTH IRA contributions at the time.

But I did not report the 1099-R details in my 2020 return, so I have to report it now during tax year 2021. Are you saying that the new excess amount in my amended 2020 tax return is whatever I was eligible for based on the new MAGI from  the earnings being applied?

[DanaB27]

Yes, based on the new MAGI with the earnings from the excess contribution you were allowed to contribute less to the Roth IRA. Therefore, TurboTax is calculating the 6% penalty on this new excess.

@fluxquantum94

[fluxquantum94]

Understood Dana, appreciate you clearing that all up for me. When amending my 2020 tax year form I noticed that the 10% tax is being applied to my 5329 form, but I had already requested a 10% tax withholding when requesting the excess contribution withdraw which was reported on my 1099-R (dated 2021, has P&J codes but received in 2022). May I get help understanding why that 10% is still being reported as tax owed in turbotax?

[DanaB27]

Yes, the earnings will be subject to the 10% early withdrawal penalty. 

The taxes you withheld have to be applied to your 2021 tax return because they were withheld in 2021. Therefore, you will have to pay the taxes on your amended 2020 return but you will get a credit for the taxes paid on your 2021 return. Please make sure your enter the 2021 Form 1099-R with codes PJ on your 2021 tax return. The 2021 code P will not do anything to the 2021 tax return but the withholdings will be applied to 2021.

@fluxquantum94

[mam62tt]

Hello,

I have a similar situation as you had with a 2021 excess Roth IRA contribution that I removed in 2022 with a loss.  I am still very confused reading through the threads and tried the instructions but still get the 6% penalty.  Did you ever get your situation corrected and if so how?  Any assistance you can provide would be greatly appreciated.

Thanks!

[macuser_22]

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@mam62tt wrote:

Hello,

I have a similar situation as you had with a 2021 excess Roth IRA contribution that I removed in 2022 with a loss.  I am still very confused reading through the threads and tried the instructions but still get the 6% penalty.  Did you ever get your situation corrected and if so how?  Any assistance you can provide would be greatly appreciated.

Thanks!

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Did you receive a 1099-R and if you did then what code(s) are in box 7?

If no 1099-R then return to the Roth IRA contribution interview and remove the excess amount in the interview since it was not in your account at the time of filing.

[mam62tt]

No, after making the removal my financial institution said I would receive the 1099-R next year in 2023.  I made the excess contribution of $7,000 in November of 2021 and processed the removal in February  2022 with a net amount of $5,514.  I created a manual 1099-R using codes J and P as directed and answered the Roth IRA prompts stating that I made a contribution and then removed it by April 18th.  I must be dong something wrong.

[fluxquantum94]

Based on what I understand from my exchange earlier in the thread - Because you had excess contributions in tax year 2021(edit* this is ONLY if it carried over from a prior tax year, correcting myself per macuser22’s response) , even if you removed it before the tax filing deadline in 2022, you are still subject to the penalty of 6% for tax year 2021 because that 2021 money was not taken out on or before 12-31-2021. I had a similar frustrating situation where in tax year 2020 I had an excess contribution and didn’t know it carried over in 2021, so I’m paying for two years of penalties and finally now removing it this year so that I’m not penalized a third time for the 2022 tax year.

In this case more relevant to your situation, I did have excess of contributions separately in tax year 2021 and I did widthdraw the excess and recorded a loss. In that case I elected to fill out my own 1099-R and say it’s for year 2022. I don’t recall getting penalized for the 6% though. I also made sure to indicate that I didn’t over contribute by updating my Roth IRA contribution amount to the calculated allowed limit.