Reporting excess Roth IRA Contribution

[jdlavian]

Hi @DanaB27, thank you for your post on this topic it has been incredibly helpful. 

Regarding the first option, " wait until you receive the 1099-R 2021 in 2022 and amend your 2020 return"

I'm in a similar situation where I contributed excess in 2022, and am now removing the excess in 2023. I rather wait until 2024 at which time (correct me if I'm wrong) I'll get my

- tax documents for 2023

- 1099-R and 5329 2022

Does that excess contribution which i actually put back into my pocket in 2023 go on my 2022 or 2023 tax returns? i.e. does it increase my 2022 (the year i made the mistake) or 2023 (the year i put the money back into my pocket) taxable income?

Thank you

[ha-diane79]

On my 1040 tax year 2021 form, I already reported excess Roth IRA contribution.  I also paid tax for the applicable earnings even the financial institution will not send the 1099-R form until next year.

This year, I receive the form 2022 1099-R.   I already filed this excess amount (1040 tax year 2021), do I need to file this 1099-R for the tax year 2022? 

[DanaB27]

You will report the withdrawal of the excess contribution for 2022 plus earnings on your 2022 tax return.

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 click 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" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

@jdlavian

@ha-diane79 

No, if you reported the 2022 Form 1099-R with code PJ already last year then you do not need to enter it on your 2022 tax return. The only exception would be if you had taxes withheld. Then you would enter it on your 2022 tax return to apply the withheld taxes to 2022. TurboTax will ignore the distribution because of the code P but will apply the withheld taxes to the 2022 return.

[professorg]

Hi DanaB27! First, thank you for your advice on this matter. Your expertise and time are deeply appreciated. Second, I apologize if this question is redundant, but I just found this thread in April 2023. 

My scenario: I made an excess Roth IRA contribution of $105 in 2022. I realized this mistake and had Vanguard remove the excess contribution in March 2023 (before Tax Day). Vanguard calculated a loss and returned a distribution of $97 in March 2023. I have not yet received a 1099-R (which I understand I will receive in 2024.) I am <59.5 years old. 

My question: If I want to manually enter a 2023 "1099-R" for the 2022 excess contribution removal, should I enter $105 in Box 1, $0 in Box 2, and both P and J  in Box 7 (because I made the 2022 excess contribution and removed it in 2023 but before 4/18/23)? P and J still apply even if I successfully removed the excess contribution in 2023 but before 4/18/23? 

Lastly, then I should not also enter any information in the other TT sections (deductions) when they ask about excess Roth IRA contributions in 2022?

Thank you very much for your time and help!

[adychn]

Hi macuser_22,

Could you be more specific on this answer? I have the similar situation filing 2022 return with a 2021 Roth IRA excess contribution which has a capital loss. And I have already removed the excess contribution plus loss as well.

When you say "If you removed it then that is the same as never making any contribution.", does that mean I don't need to enter any Roth IRA Contribution while preparing my 2022 return? Like saying I didn't make any Roth IRA contribution?

Thanks for your answer.

[DanaB27]

You will enter the amount distributed to you in box 1 ($97) and $0 in box 2a. Yes, codes P and J apply since you removed a contribution for 2022 in 2023.

If you removed the full Roth IRA contribution then you don’t have to enter the Roth contribution in the IRA contribution interview. Another option is to enter the Roth contribution in the IRA contribution interview and enter the full excess contribution amount removed (ignore the loss) on the penalty screen ($105). 

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until the penalty screen and enter the excess contribution amount withdrawn.

@professorg

@adychn

Yes, if you removed the full Roth IRA contribution then you don’t have to enter the Roth contribution in the IRA contribution interview (saying you didn't make any Roth IRA contribution). Another option is to enter the Roth contribution in the IRA contribution interview and enter the full excess contribution amount removed (ignore any losses and earnings) on the penalty screen.

[cyber_skippy]

Hi @DanaB27 ! My situation is very similar to the original post, but for Tax Year 2022.  Also, my Roth IRA declined in value between the time of the excess Roth IRA contribution (made in calendar year 2022 for tax year 2022) and the time of my withdrawal of the excess contribution (in calendar year 2023, but before I've filed my 2022 tax return).  My contribution was $7,000, the entire amount of which is an excess contribution.  Using IRS regulations, my financial institution determined the amount to be returned to me.  Because the value of the Roth IRA declined, the amount returned to me was less than $7,000.  For the sake of this post, let's say that amount returned was $4000.  So, I created the 2023 1099-R to be reported on my 2022 tax return, and entered $4,000 in box 1 (total distribution) and $0 in box 2 (earnings).  Notably box 2 would not allow me to enter a negative number (to represent the loss).  I entered codes J and P in box 7 and then answered the subsequent TurboTax question that this Form 1099-R is a 2023 1099-R.

My questions:

1. Do I need to complete any other fields in the Form 1099-R - payor info, and boxes 3-6 and 8-16, or do I just leave them all blank?  No taxes were withheld (obviously) by my financial institution.

2. When entering my Roth IRA contribution (in the Deductions & Credits section of TurboTax), do I enter $0, $4000, or $7000?  I contributed $7,000, but it came out as $4,000 (given the decline of my IRA).  But, in a sense, I didn't make an IRA contribution, since I have withdrawn it ahead of tax filing for the contribution year.  It seems if I say $7,000, it will seem like I've made a net $3,000 contribution since I took out only $4,000.  I'm guessing that I enter $4,000 for my Roth IRA contribution, but I really don't know.

Thank you!

[DanaB27]

1. Yes, you will need to enter the payer information and the payer’s TIN. Boxes 3-6 and 8-16 can be left blank.
2. Since you removed the full contribution, you don’t have to enter any Roth IRA contribution. Another option is to enter the $7,000 contribution and enter $7,000 on the penalty screen as removed by the due date.

@cyber_skippy 

[professorg]

Thank you!!

[TBmark23]

Similar circumstances, but different question:

While completing TT for tax year 2022 and entering a Roth IRA contribution from 3/7/2022,  I am alerted that my modified AGI exceeded the limit for Roth IRA contribution, and I had asked my financial institution for Removal of an Excess IRA contribution which was calculated with the (loss) Net Income Attributable and after reading these posts, I was preparing to enter a 1099-R for 2023 to cover the removal of the excess contribution when it occurred to me that this contribution may be considered a 2021 contribution when my income was at a qualified level for Roth IRA contribution.   I made a Roth IRA contribution of $1000 on 3/7/2022 and entered it on my tax year 2021 filing when my income level was within the MFJ limits for Roth contributions. So, my questions are:

1.  Should this contribution be considered for the 2022 tax year when my income exceeded the contribution limit, or do I ignore it since it was made before the filing deadline for 2021 tax year and effectively was made in "2021"?  If this is a 2022 contribution, then I assume I would just follow the advice of multiple previous posts.

2.  If this was reportable in 2021 instead of 2022, what are the consequences of requesting the removal of the $1000 minus losses this year given that there was no taxable gain included and no tax withheld?

3.  If this "Removal of Excess Contribution" was an error, how do I correct it?

[DanaB27]

To confirm you checked your statements and don't show any Roth IRA contributions for 2022? Then your financial institution shouldn't have processed the return of the 2022 excess contribution (with loss). You might want to check with them.

But since you received the distribution and a Form 1099-R you will have to report it. But it won't be taxable since you had no earnings.

@TBmark23 

[TBmark23]

I contacted the financial institution and after some searching, the contribution was characterized as a 2022 contribution, although I thought it was entered as 2021 at the time (could have been characterized as being contributed in either year given the contribution date).  Given this, I think I will go with the plan to enter a Form 1099-R now to avoid amending my 2022 tax return in January 2024 when the 1099-R arrives.    I will list the total distribution in Box 1,  enter $0 in Box 2a, and enter J and P codes in Box 7.  I will list the withdrawal of the excess contribution amount on the Penalty Screen to avoid having the 6% penalty calculated (listing the full contribution amount as withdrawn).    Does that seem right?

[DanaB27]

Yes, that is correct.

@TBmark23 

[Anne_2022]

Hi @DanaB27 

I have a very similar situation and would appreciate it if you can help me.

I contributed $6000 to Roth IRA in 2022 and found out in 2023 that my income limit was over and removed $5000 (since it was a loss) in April 2023 before filing deadline.

I put in Box 1. $5000 and Box 2. $0 and Box 7. P, J

Question:

1). Is the above entry correct? TT keeps asking me about the $0 in box 2

2). TT is asking me to put an explanation for Form 8606-T return of IRA, is that an error? Do I need form 8606T for my excess contribution that I removed? I tried deleting the form but it still shows up in notifications on my  TT 

Thank you!

[DanaB27]

Q1. Yes, if you had a loss then box 1 will be the distribution amount and box 2a will be $0 with codes P and J in box 7. 

Q2. Yes, you will have an explanation statement for the return of contribution where you will enter that the $6,000 excess contribution for 2022 was removed by the due date with a loss of $1,000.

No, you should not need Form 8606. Please see Who Must File Form 8606 for details.

@Anne_2022