Roth IRA excess contributions 2021

[dan2022]

Because of my AGI, I became ineligible to contribute to my Roth IRA in 2021.  However, I had already contributed $5,000 between Jan 2021 and Dec 2021.   In Feb 2022, I withdrew the excess contribution of $5,000.  I also withdrew the earnings on the excess contribution.  It is my understanding that I have to pay taxes on the excess contribution earnings in tax year 2021.  I'm not sure how/where to enter the excess contribution withdrawel of $5,000 or the earnings on the excess contribution.  I don't have a 1099-R.  I have not filed my taxes yet for 2021. 

[DanaB27 · Accepted solution]

Yes, 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 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 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.

Please see What happens if I made an excess Roth IRA contribution for future references.

[jcavenia]

Because I had no earned income I was ineligible to contribute to my Roth IRA in 2021.  However I contributed $3000 in December.  I withdrew the excess contribution in February of 2022.  The amount calculated by the brokerage was $2783.50 showing a loss of $216.50.  When doing the 1099-R what do I put in Box 1, the original $3000 or  the $2783.50?  What to I put in box 2a, a negative $216.50 (loss) or some other amount?  Do I put anything in box 3?  Do I put a check in the IRA/SEP/SIMPLE box?

[DaveF1006]

No put in $3000 in Box 1 and leave Box 2a blank or unless there were earnings, put the amount of the earnings in Box 2A. Be sure to put Codes P & J in Box 7 so that it doesn't make this a taxable event except for the earnings, if there were any.

@jcavenia

[mr_rj]

This advice is contradictory to the advice given in the link below. Box 1 should be either contribution + earning or contribution - loss. Box 2a should be 0 in case of loss (negative net attributable ) or the earning incase of a positive net attributable.

https://www.google.com/amp/s/ttlc.intuit.com/community/tax-credits-deductions/discussion/excess-roth...

[kbr1988]

@DanaB27 I hate to have you be repetitive but I have a similar situation and have some questions to this response. I contributed $6K to my Vanguard Roth IRA from Jan - Dec 2021 and when filing my taxes with TurboTax was alerted that because of my AGI I was in excess of $3,360 for 2021. On March 18, 2022, I recharacterized $3,500 from my Roth IRA back into my bank account (not into a Traditional IRA) and it had some losses to the total I received back was $.3,429.44.

It looks like through TurboTax (under Federal --> Deductions & Credits --> Roth IRA) I still put that I contributed $6,000. Because I don't get the 1099-R until after April 18, what do I need to do in order to finish my taxes and not get penalized? Do I have to ask for an extension and wait for the 1099-R and then do something? Or just continue as normal with TurboTax telling me I owe money on the excess? This is where I'm confused as I don't know how I make it known that this was removed in the correct timeframe. I also am confused on what I'm supposed to do with the 1099-R coming after tax day.

It sounds like if I report the 1099-R I would get post-tax day on my Taxes next year I won't get further penalized?

Any way you could put this for someone who is totally clueless here would be so appreciated. Thank you so much!!

[DanaB27]

First, you will enter the excess contribution amount withdrawn by the due date (without earnings and losses) on the penalty screen during the IRA contribution interview.

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

You will get a 2022 Form 1099-R in 2023 with codes P and J for the withdrawal of excess contribution and loss. 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 Form 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 Form 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 withholdings will be applied to 2022.

To create a Form 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.

@kbr1988

@mr_rj  Yes, box 2a will be $0 when you had a loss.

[kbr1988]

@DanaB27 Thank you!

I'm a little confused by some wording. To confirm, for the part below would I enter my original contribution of $6000.00 or would it be $2,500 (the amount after removing $3,500 to get under the max)? After losses I received $3,429.44 but it looks like I don't enter any earnings or losses.

"Enter the contribution amount without earnings and losses as withdrawn by the due date on the penalty screen"

Thank you again!

[DanaB27]

You would enter the $6,000 contribution as contributed and then on the penalty screen you will enter $3,500 as removed by the due date (ignoring the losses). Therefore, you will have a $2,500 contribution left in the Roth.

@kbr1988

[kbr1988]

@DanaB27 Thank you!

I called Vanguard and they confirmed I would be receiving the 1099-R in January, 2023 (since I removed the $3,500 on 3/18/2022). I asked if I could get the information in that document now to create by own 1099-R per your instructions and they said that wasn't possible at the moment. Since I can't get it early, there's no way for me to know the information to put in, correct? Or is it only the amount original contributed and removed?

You can wait until you receive the 2022 Form 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 Form 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 withholdings will be applied to 2022.

If I move forward by putting in the $6,000 and $3,500 in TurboTax as we previously discussed (screenshots below), I won't be penalized on my tax return this year and can continue forward with no other information need at this time. Then when I receive the 1099-R in Jan. 2023 I just amend it to my 2021 filing and should be good?

Thank you again for your time and all of your help!!

[DanaB27]

Yes, your entries look good.

Yes, if you prefer you can wait until you get the 2022 Form 1099-R and then amend your return.

But since you had a loss when you withdrew the excess contribution it shouldn’t be too difficult to create your Form 1099-R. But you might have to call Vanguard to ask for their Taxpayer Identification Number (TIN).

Please choose the option you are most comfortable with.

To create Form 1099-R:

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 = $3,429.44 )
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 Form 1099-R.

@kbr1988

[kbr1988]

@DanaB27 Thank you, Dana!

For this part, is this in my own words or something I should be getting from Vanguard/elsewhere? Not sure I understand exactly what to put here or if there is a statement you know of for what I did. As a recap, I realized through TurboTax that because my income went up I couldn't contribute the full $6K anymore. So I removed the excess and sent it back to my bank account. Here's a recap:

Originally Contributed: $6,000.00

Removed: $3,500.00

Losses: $70.56

Total back to my bank account: $3,429.44

Thank you!!

[DanaB27]

I'm assuming your are referring to the explanation statement. You can just write that you "withdrew the 2021 excess contribution of $3,500 with a loss of $70.56".

@kbr1988

[kbr1988]

@DanaB27 Got it!

I just came across this the attached image. Do the entries in boxes 1 and 2a look correct to you?

Thank you!

[DanaB27]

Yes, this looks correct.

@kbr1988