Reporting excess Roth IRA Contribution

[DanaB27]

On your 2020 tax return, you will enter the $6,000 contribution to the Roth and continue through the questions until you get the penalty screen, there you have the option to enter the $800 that you withdrew by the due date of the 2020 tax return. You will enter the 1099-R for the return of excess contribution plus earnings to report the taxable earnings.

On your 2021 tax return, you will enter the $6,000 contribution to the Roth and enter the 1099-R for the return of excess contribution plus earnings to have the tax withholdings applied to 2021. Enter the 1099-R as shown on the form. The 2021 code P will not do anything in the 2021 tax return but the withholding will be applied to 2021.

To enter the Roth contributions:

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

To enter the 1099-R:

1. Click on "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R”

@vxn2633 

[Anonymous]

Hi again - sorry I'm still a bit confused. Part of your reply says I should not file anything with my 2021 tax return since I removed the 2021 excess contribution to my Roth IRA before filing 2021 tax return because I had no gains (only losses). But then you state that I should fill in the 1099-R and put $0.00 in box 2a and use code P (so that I can ignore the 1099-R form when I receive it in January 2023). Should I include the 1099-R now or not? If I am able to resolve now (so I can avoid the 6% penalty) I would prefer to do so but I seem to keep getting contradictory information.

[DanaB27]

Yes, you can include a Form 1099-R for the withdrawal of excess contribution now to avoid amending it. As mentioned by awesome expert FangxiaL this transaction will not be taxable since you did not have any earnings but you will enter it into TurboTax to report the distribution.

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 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.

Please make sure, that you entered that you withdrew the excess contribution amount on the penalty screen during the IRA contribution interview to avoid having the 6% penalty calculated. Please make sure you enter the full contribution amount as withdrawn in this section.

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"

@Anonymous
 

[Anonymous]

Okay, so on the TurboTax screen where it says: "Contributions withdrawn before the due date. Enter any contribution that you withdrew before April 18, 2022 (or October 17, 2022 if you're filing an extension)" do I enter the total excess contribution (which is $870), or the excess minus losses ($750) which is what was actually returned to me?

[DanaB27]

You enter the total excess contribution of $870.

@Anonymous

[cweis]

Hi Dana,

I have found myself in a similar situation to the above posters and am confused on how to best take care of everything in TurboTax.

In Jan 2021, I put 6K into my ROTH IRA as I had previously been below the income limit. At the end of the year, I took a new job and my income was pushed over the limit. In Feb 2022 (pre filing 2021 taxes), I filed an excess contribution withdrawl and removed $6778 (6k+ 778 earnings). When I withdrew these, I opted to withold some tax because Vanguard required it for Federeal and I opted to do it for State as well (10% each). 

Now my question is how to enter these into turbotax. Should I put that I contributed to a ROTH IRA and then say I contributed 6k or 0? Would the excess contribution be 6k? Would the contributions withdrawn be 6778?

Because I removed this before the tax deadline, do I need to create/make sure there is a 5329? Since I witheld state and federal tax on the earnings, should I create the 1099R now per your above instructions or will I need to ammend these later anyways because box 4 and 14 will be checked?

Thank you in advance for your help!

Chris

[RobertB4444]

@cweis  You're going to create the 1099-R that you are going to receive next January. 

You are going to do it as close as possible to exact because if it is very different from the final 1099-R that you receive then you WILL have to amend your return and you don't want to do that. 

So if you need to call your broker to double-check your numbers then do so.  But the contributions and withdrawals are put on your tax return based on the year that they are categorized for, not necessarily the time period when they are actually deposited or withdrawn. 

So even though the form won't arrive until January 2023 this is what the IRS expects you to do.

[cweis]

Ok that helps for the 1099 part. What about the numbers for contributions and withdrawls? Does that all go to 0 and I say that I did not contribute at all?

Is there a benefit (tax, headache, or otherwise) to doing the 1099 now vs waiting for the real one next year? 

[MaryK4]

If you do the corrective distribution, in TurboTax you remove the contribution so you are not prompted about the excess and the information is not transferred to 2022.  It is absolutely better to do it now than wait until next year for convenience- you will not have to go back.

@cweis

[cweis]

The first post in the chat mentioned if there is tax witheld that I would need to come back and revise this next year. I know that federal and state tax was witheld at 10% each and can get all those numbers. Can you please clarify that I can do this if I had tax witheld? 

"You can report it now in your 2020 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 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021."

[DanaB27]

 Yes, you have to enter the 2022 Form 1099-R on your 2022 tax return as well if you had taxes withheld. 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 in 2022 tax return but the withholding will be applied to 2022.

You will not enter the tax withheld on your 2021 tax return when you create the 1099-R for the withdrawal of excess contribution plus earnings.

@cweis

[macuser_22]

---

@cweis wrote:

The first post in the chat mentioned if there is tax witheld that I would need to come back and revise this next year. I know that federal and state tax was witheld at 10% each and can get all those numbers. Can you please clarify that I can do this if I had tax witheld? 

"You can report it now in your 2020 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 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021."

---

For an excess in one year returned in the following yer it makes not sense to have tax withholding since the excess must be reported in the tax year that the excess was *for* but the withholding can only be reported in the year actually withheld, so the withholding will not pay the tax on the excess.  

   If this was a 2021 excess returned in 2022  then the 1099-R should have a code "P" in box 7 and the box 2a amount is taxable in 2021, then if there is box 4 withholding that can only be claimed on the 2022 tax return next year.

[cweis]

Ok that makes sense. I probably should have changed the witholding to none before filing the excess contribution form. Since taxes were witheld, it sounds like I should file my 2021 taxes now without reporting any contributions to the ROTH IRA and also without any 1099R. I would then correct it in 2023 on my 2021 taxes. 

Does that make sense?

[fluxquantum94]

Hello, where should we be reporting the 2021 tax year excess contributions withdraw that I executed this 2022 year? I definitely want to avoid amending a return if possible. Thank you for your time.

[DanaB27]

Cweis: No, you will have to report the withdrawal of the 2021 excess contribution plus earnings on your 2021 tax return. If you do not report it now, then you will have to amend your 2021 tax return when you receive the 2022 Form 1099-R with code J and P next year. But you also will have to enter this Form 1099-R onto your 2022 tax return as well because you had taxes withheld.

To summarize, you will enter the Form 1099-R with codes J and P on your 2021 and 2022 tax returns because you had taxes withheld. When you create Form 1099-R for 2021 you don’t have to enter anything in box 4 or box 14 for the tax withholdings since they don’t apply for 2021. When you get Form 1099-R next year you will enter it as shown on your Form into your 2022 tax return. The 2022 code P will not do anything in 2022 tax return, but the withholding will be applied to 2022.

If you already had entered the Roth contribution, then just enter on the penalty screen during the IRA contribution interview the excess contribution amount that you removed by the due date.

To create a 1099-R to avoid amending your 2021 tax return next year when you get 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 plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Leave Box 4 federal tax withheld and Box 14 state tax withheld blank
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 under "Another reason" if you are over 59 1/2 (if you under 59 1/2 click "Continue")

@cweis

@fluxquantum94  If you want to avoid amending your 2021 tax return, then you will create a 1099-R with the steps above to report the withdrawal of excess contributions plus earnings on your 2021 tax return. Only the earnings will be taxable. Also, the earnings can be subject to the 10% early withdrawal penalty if you are under 59 ½.