Reporting a Removal of Excess Contribution from a Roth IRA

[AtIas]

Hello everyone,

I contributed $6,000 to my Roth IRA in Jan. 2022 but I unexpectedly only earned $548.73 in 2022. I followed my Roth IRA custodian's procedure for removing the excess contribution and earnings and submitted my removal of excess request to them on Dec 15, 2022. I elected to have both federal and state taxes withheld. TD Ameritrade dragged its feet and didn't fulfill my request until 1/11/2023. I know that this complicates things, as the taxes that I had withheld were technically withheld in tax year 2023 while the removal of excess still counts as occurring in tax year 2022. I won't get the 1099-R for the removal of excess transaction until 2023, but I still have to report it on my 2022 taxes.

I'm using olt.com to file my 2022 taxes and it has a section called "Return of IRA contributions" that I can click on and within which I can intuitively enter in the necessary numbers. It has a box entitled "Enter distribution of the returned contributions for 2022" where I entered just the contribution portion of the excess, a box entitled "Enter related earnings (minus any loss) of the returned contributions for 2022" where I entered just the earnings on the excess, and finally it has an explanation box where I did my best to explain the situation. When I get the 1099-R in 2023 I plan to include it on my 2023 taxes and report the tax withholding at that time. Doing it this way should cause the earnings portion of the distribution to be reported income on my 2022 taxes and not my 2023 taxes, while the taxes that I had withheld should reduce my 2023 tax burden and not my 2022 tax burden.

I'm also claiming an exemption from the 10% additional tax penalty on early Roth distributions on my 2022 taxes.

I had felt pretty good that I was doing it correctly however I came across this post on the TurboTax forums which has instructions from experts that seem slightly different from what I've done: https://ttlc.intuit.com/community/retirement/discussion/i-removed-my-excess-roth-ira-contributions-b... I can't tell if this discrepancy is just because I'm using different software or if I'm actually doing it wrong. Am I going wrong anywhere? If so, could someone please suggest a resource (besides a tax professional) or just flat out tell me what I've messed up.

Thank you in advance.

[DanaB27 · Accepted solution]

I'm not familiar with the software you used but you can check your Form 1040 if you reported it correctly. Line 4a should have the distribution amount you received and line 4b should have the earnings listed. 

Yes, since you took the distribution after December 29th, 2022 you qualify for an exemption from the 10% early withdrawal penalty.

Yes, you will have to enter your 2023 Form 1099-R with codes P and J on your 2023 return to apply the taxes to 2023.

Please see Withdrawal of excess contributions for additional information.

[AtIas]

Thank you! 

When you say line 4a should have the distribution amount I received do you mean the total amount that was returned to me or just the contribution portion without the earnings?

It does appear that congress passed a law on Dec. 29, 2022 making the earnings portion of a removal of excess transaction no longer subject to the additional 10% tax regardless of age: https://www.irs.gov/instructions/i5329#en_US_2022_publink[phone number removed]

Its the 2nd entry under "What's New"

Thank you for your help!

[DanaB27]

The total amount that you received (should be contribution plus earnings).

Yes, that is correct.

@AtIas