Roth IRA excess contribution in 2021.

[gringuru]

hello , I need your expertise.~~~

I made excess contribution in 2021. (I didn't report Roth IRA in 2021 file)

I didn't know it when I was filing 2021 tax return in 2022. 

I found out 2021 MAGI is over than Roth IRA limitation recently in 2023. 

(Accountant filed my 2021 tax return in 2022, so I didn't know the Roth IRA limitation)

I asked banker to remove my contribution $6000 one month ago. and they did. but they will send 1099 R in January 2024. 

- for withdrawing I've sell stocks and net is loss, not gain as below.

      one stock gain : $1012 

      the other stock loss : $1847

- and banker withdrawn  $6000 and transfer it to my check account

in my view I have to pay 6% penalty and 10% penalty belong to earnings, but I think there is no earnings.

questions , 

1. should I consider $6000 as 'distribution' ? there are some fields related to IRA distribution. I wonder this is distribution or not... 

2. how can I make 1099 R manually ? 

3. if I don't make manual 1099 R and I would like to amend 2022 tax file when I got 1099 R in Jan-2024 then could I file just penalty at this time and then amend 1099 R information in Jan-2024?

I've made 5329 via TT > 

[DanaB27 · Accepted solution]

Yes, your 2022 Form 5329 seems correct.

You will have to pay the 6% penalty on your 2021 and 2022 tax returns because you didn't remove the excess until 2023. You will need to amend your 2021 tax return and add Form 5329 to pay the 6%.

On your 2022 tax return (you seem to have entered this correctly since you show the correct Form 5329):

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “Roth IRA”
6. On the "Do you have any Excess Roth Contributions" answer "Yes"
7. On the "Enter Excess Contributions" screen enter the total excess contribution from 2021.
8. TurboTax will create Form 5329 with the 6% penalty.

Next year on your 2023 tax return you will report the 2023 Form 1099-R with code J (if you are over 59 1/2 it can be code T or Q) for the regular distribution of the 2021 excess:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Enter all your 2023 Form 1099-Rs
5. Click "Continue" on the "Review your 1099-R info" screen
6. Answer all the questions and make sure you enter the net contributions prior to 2023 (this will include the excess for 2021) on the "Enter Prior Year Roth IRA Contributions" screen
7. On the "Do you have any Excess Roth Contributions" answer "Yes"
8. On the "Enter Excess Contributions" screen enter the total excess contribution from 2021.

Entering the 2023 Form 1099-R with code J  on your 2023 tax return will enter the $6,000 distribution on From 5329 line 20. This will remove the excess from your 2023 tax return and you will not have to pay the 6% penalty.

Please be aware, if you remove an excess contribution after the due date then you will have to request a regular distribution (without earnings or losses) in the amount of the excess contribution.

[gringuru]

thanks DanaB27,

oh~ I have to pay 6% penalty on 2021 as well as 2022. 

actually I removed excess in 2023.. 

if I make 1099 R manually in 2022 filing then could I avoid 6% penalty on 2022 ? 

(fill $6,000 distribution on From 5329 line 20 in 2022 tax return)

thanks for your help in advance.

[DanaB27]

Yes, you will have to pay the 6% penalty on your 2021 and 2022 tax returns because you didn't remove the excess until 2023. 

No, you cannot enter just a 2022 Form 1099-R, you hadn't removed the excess contribution in 2022. You will get a 2023 Form 1099-R in 2024 which will be reported on your 2023 tax return. And this will remove the excess contribution and then you won't have to pay the 6% penalty in 2023.

"In general, if the excess contributions for a year aren’t withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of your tax year." (IRS)

[gringuru]

thanks for advice, @DanaB27 !~

when I input as you guided. I can see below data on PDF file. 

actually I withdrew it but below #11. seems carryover of excess contributions to 2023... 

is this correct? when I file 2024 with 1099R it will be removed ? 

[DanaB27]

Yes, that is correct. The excess contribution will be carried over to 2023. When you enter the 2023 Form 1099-R for the excess distribution it will remove the excess carried over and you won't pay the 6% penalty on your 2023 tax return.

@gringuru 

[gringuru]

thanks for best advice, @DanaB27