Reporting excess Roth IRA Contribution

[ha-diane79]

I & my husband made an excess Roth IRA contribution in 2021, while filling my income tax during March 2022, turbo tax premier caught it. I  contacted my financial institution and removed the excess. I have a loss and my husband has earnings. My financial institution says I won't receive 1099R until Jan 2023, so I need to pay for my husband earnings for 2021 income tax return.

For me I had a loss, which code do I use? I made contribution on January 2021 and I reached 60 years old on December? So will I still pay 10% penalty? 

[DanaB27]

No, you will not pay the penalty since you did not have any earnings. Please be aware, only the earnings will be taxable and subject to the 10% early withdrawal penalty (if you are under 59 ½).

Please follow these steps to create your husband’s Form 1099-R who had earnings:

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.
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 "Continue") 

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 follow these steps to create your Form 1099-R with a loss:

1. Click on the "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R”
3. Answer "Yes" to "Did you get a 1099-R in 2021?"
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution minus loss)
6. Box 2a enter $0
7. Box 7 enter J and P
8. Click "Continue"
9. On the "Which year on Form 1099-R" screen say that this is a 2022 1099-R.

[ha-diane79]

Thanks Dana(B27),

Followed your instruction, on box 7 I enter:

      J - Early distribution from a Roth IRA

      P - Return of contribution taxable in 2020

Why it is the year 2020?  Should it be 'Return of contribution taxable in 2021'?  I made contribution on 1/11/2021 and withdraw the money on 3/22/2022.

[macuser_22]

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@ha-diane79 wrote:

Thanks Dana(B27),

Followed your instruction, on box 7 I enter:

      J - Early distribution from a Roth IRA

      P - Return of contribution taxable in 2020

Why it is the year 2020?  Should it be 'Return of contribution taxable in 2021'?  I made contribution on 1/11/2021 and withdraw the money on 3/22/2022.

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if you made the contribution on 1/11/21 then that was before the due date of the 2020 tax return so it was applied as a 2020 contribution made in 2021 so the return of contribution is taxable in the tax year that it was for - 2020.

[ha-diane79]

but I pick year 2022 for the form 1099-R. I don’t get it.

[DanaB27]

Yes, since you made the contribution on 1/11/2021 and withdrew the money on 3/22/2022 it has to be “Return of contribution taxable in 2021”. Code P on a 2022 Form 1099-R that you will get in 2023 for the withdrawal of excess contributions and earnings will mean “Return of contribution taxable in 2021”. That is why you need select that you are entering a 2022 form in the follow-up screens to tell TurboTax that it is a 2022 form and therefore the code P means “Return of contribution taxable in 2021”.

@ha-diane79

[chy105]

I have the same problem but I have already reported my excess contribution in my 2020 tax return.  Does that mean that I can ignore the 1099-R form for 2021 while filing the 2021 taxes?  Nothing shows in box 4 or 14. There is no withholdings on my 2021 1099-R form, only codes P and J.

[DanaB27]

Yes, if you have already reported the withdrawal of excess contribution plus earnings and don’t have any tax withholdings then you can ignore Form 1099-R with codes P and J.

@ chy105

[jhchenky]

I made a roth contribution ($6000) on January 2022 for my 2021 roth. In March, I contacted my financial instiution to withdraw the excess roth contribution (resulted in a loss-$5600) due to my income exceeding the limit to contribute.

From reading this thread, it seems like my approach would be to be to create a mock 1099-R to report the distribution of the excess roth. The codes I would use for Box 7 is JP, Box 1: 5600 and 2a: 0, is that correct?

If I were to hold off and wait until 2023 for my 2022 1099-R, and then use it to file for 2022 tax, would that make a difference? I assume no amendment would be needed for 2021 tax as there were no earnings from the excess roth distribution?

Does both option work or does the latter approach create more problem down the line?

[DanaB27]

Yes, Box 1 would be the distribution amount and Box 2a would be $0 since you did not have earnings. It will not be taxable.

No, the 2022 Form 1099-R with codes JP has to be reported on your 2021 tax return. You only enter it on your 2022 tax return if you had taxes withheld to get them applied to 2022. 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 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 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.

@jhchenky

[bigslimdog]

Hi,

I have some questions regarding the details of this process. Like many here, I made a contribution to my Roth IRA for 2021, which I discovered recently in 2022 was entirely disallowed. I submitted a form to my custodian to remove the excess and am waiting for them to remove it so I can know the amounts to fill in on lines 1 and 2a of the mock 1099-R. On the removal request form, I elected to withhold federal tax on the earnings at 10%, and I elected not to withhold state tax because I live in New Jersey and I believe this is not required.

1. What would be my recourse if my IRA custodian fails to remove the excess before the tax filing deadline? Could I file for a (fed & state) extension, and does TT charge for e-filing for an extension and later e-filing the return? I am using Premiere desktop edition.
2. On the 1099-R I am creating in TT, under State Information, what should I put in boxes 14-16? Can I leave them all blank? In particular, what is box 16 (State Distribution Amt)?
3. Several screens beyond this form, TT asks "Where Is This Distribution From?". I believe I should say "None of the above". Just beneath that on the same screen there are boxes asking for these items:
   1. New Jersey Distribution Amount
   2. New Jersey Withholding
   3. Payer's NJ State ID No.

I think these are asking for the same values as 1099-R boxes 14-16. Is that correct? But I don't know what to put in them.

Thanks for your help @DanaB27 and others on this thread.

[DanaB27]

1. Yes, you have until the due date (including extension) to remove the excess contributions and earnings. Yes, you can file an extension (free) and then file your return later. Just make sure you pay any tax due by April 18th to avoid incurring interest.

2. and 3. The distribution amount in box 16 for the state is the amount from box 1 (contribution plus earnings). You will leave box 14 state withholdings blank. You can ask your financial institute for  State/Payer’s state no in box 15.

Please be aware, that since you had federal taxes withheld you will need to enter your 2022 Form 1099-R with codes P and J also on the 2022 tax return to get the taxes withheld applied to 2022. The 2022 code P will not do anything to the 2022 tax return but the withholdings will be applied to 2022.

@bigslimdog

[PZ_1966]

Hi @DanaB27 

I am using Turbotax to do 2021 return. I realized that I made excess Roth IRA contribution in 2019, but never paid any penalty (not aware that I need to pay penalty). Should I make an amendment for previous years (2019, 2020) to pay the 6% penalty on excess amount? if so how do I do that, can I do it using Turbotax?  I will withdraw the excess contribution amount sometime this year.

Thanks for your help.

[DanaB27]

Yes, if you made an excess contribution then you will have to pay the 6% penalty for each year until you either absorb it with the allowed contribution the next year (if you are allowed to make the contribution) or withdraw it. Please be aware, since it is after the due date if you withdraw the excess you only need to request a regular distribution without earnings.

Please see How to amend (change or correct) a return you've already filed

For 2019, all you should have to do to trigger the 6% penalty on Form 5329 is to enter your Roth contribution.

For 2020, you will enter that you had an excess contribution from prior years and enter the excess contribution amount from 2019.  

If you didn't remove the excess by December 31, 2021, then you will enter that you had an excess contribution from prior years and enter the excess contribution amount from 2019.  

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2019
6. If you are allowed to make a contribution then you can apply the excess as a current year contribution on the next screen.

@PZ_1966

[jhchenky]

Thanks for the clarification. I was wondering regarding the the code for box 7, does it matter if its entered as JP vs PJ? I saw from previous posts to enter P in the first box and J in the second box.