2023 Excess Roth IRA Contribution

Forum|Forum|2 years ago
January 25, 2024
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In 2023 My wife and I made excess contribution of $1200 each to our Roth IRAs. We were over the AGI limit. I just caught this in Jan 2024 in prep for 2023 taxes. I have successfully requested the excess from Vanguard for both of us. We did both have some gain. How do I handle this in TurboTax? Do I say "yes" I made an excess contribution or "no" because I have pulled it back before I filed? Also, how do I handle the gain for each of us as I was told I will not get a 1099R till next year because the distribution for pulling back our excess 1200 + gain each happened in 2024? Thank you

Best answer by AnnetteB6

so for box 1 and 2a, i should only put the gain. Or should I leave 2a blank and check box 2b "amount not determined"

You will enter the total distribution (contribution plus earning) in box 1 and the earnings in box 2a.

You will get a 2024 Form 1099-R in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:

You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 return please follow the steps below:

Login to your TurboTax Account
Click on the "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Answer "Yes" to "Did you get a 1099-R in 2023?"
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2a enter the earnings
Box 7 enter J and P
Click "Continue"
On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
Click "Continue" after all 1099-R are entered and answer all the questions.
Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

@manisman1995

Opus 17

Employee

You do not report the contribution, because it is as if it never happened.

You do report the earnings on your 2023 return (this year). You can create a "substitute 1099-R" to report the dollar amount (actually, 2 substitute 1099-Rs, one for each spouse's account). Use code J for the distribution code in box 7. The distributed earnings may be subject to income tax and a 10% penalty, depending on your age and how long ago you opened the IRAs.

Then, next year, the 1099-R you receive will have code P, meaning a distribution of earnings due to a corrective withdrawal that was taxable in the previous year. You include it on your return but you won't pay tax again.

manisman1995Author

So, just to be clear I do NOT use a code of PJ like I have read elsewhere? I will only use a code of J? What is the difference of code 1 and J? They look the same and in a previous 1099 distribution Vanguard used a 1 not J. Also, in the the 1099s I make up for each spouse, do I put the whole distro in box 1 (1200+gain) and in 2a just the gain? Thanks again.

Opus 17

Employee

The amount of the 1099-R is the earnings only, you didn't actually withdraw any contributions because the contribution never happened (once it is removed).

Code P is definitely wrong because, on a 2023 1099-R, code P would mean a withdrawal of earnings that was taxable in 2022, which is not what is going on.

My best guess is code J, but if you are under age 59-1/2, code 1 would work just as well since it tells Turbotax to tax the whole thing and apply the penalty.