excess Roth IRA contributions for multiple years.

Question

the situation: 1) I am in my 30s and made excess Roth IRA contribution for tax year 2020, 2021, and 2022.2) realized the error on March 2023 (have not filed 2022 tax return yet), and request the return of excess contribution without earnings/loss for 2020, 2021 and the return of excess contribution with earning/loss for 2022.questions regarding the amending 2020 and 2021 tax:1) to amend 2020 tax, the only thing needs to do is to fill out the 5329 form in Part IV to pay 6% Penalty on the 2020 excess contribution (without earnings/loss), correct?2) to amend 2021 tax, the only thing need to do is to fill out the 5329 form in Part IV to pay 6% penalty on both the 2020 and 2021 excess contribution (without earnings/loss), correct?questions regarding the 2022 tax (have not filed yet)1) fill out 5329 form Part IV to pay 6% penalty on the 2020 and 2021 excess contribution (without earnings or loss).2) after request the return of excess Roth IRA contribution for 2020, 2021 and 2022 to my IRA brokage,I will get only one 2023 Form 1099-R in early 2024, correct? if so,3) should I use the 2023 form 1099-R to report only the earnings of 2022 excess contribution to 2022 tax return, not 2023 tax return?4) what should be reported in 2023 tax return? (there is no federal nor state tax withhold from my IRA brokage for the return of excess contribution for tax year 2020, 2021 and 2022).5) if my understanding is correct for 2022 tax return, three things need to be done as follows.A) pay the 6% penalty on 2020 and 2021 excess contributionB) Using 2023 Form 1099-R to report only the earnings of 2022 excess contribution as taxable income into 2022 tax return.C) no need to report 2023 Form 1099-R on 2023 tax return, in other words, nothing needs to done to 2023 tax return and it is a fresh start.Thanks a lot,

DanaB27 · Accepted Answer

If you withdraw the excess contribution and earnings before the extended due date then you can avoid the 6% penalty. Please see the Withdrawal of excess contributions for details. Therefore, if you remove the excess contribution for 2022 plus earnings before October 16, 2023, then you don't have to pay the 6% penalty on your 2022 tax return for the 2022 excess contribution.

If you miss the deadline then you will have to pay the 6% penalty and remove the excess by requesting a regular distribution (without earnings or losses).

You will have to pay the 6% penalty for the 2020 excess on your 2020 return. Enter your contribution and TurboTax will calculate the penalty on Form 5329.

You will have to pay the 6% penalty for the 2020 and 2021 excess on your 2021 return. You will enter the contribution for 2021 and enter the 2020 excess when TurboTax asks about the prior year's excess. TurboTax will calculate the penalty on Form 5329.

You will have to pay the 6% penalty for the 2020 and 2021 excess on your 2022 return. You will enter the contribution for 2022 and enter the 2020 and 2021 excess when TurboTax asks about the prior year's excess. On the penalty screen, you will enter that you removed the 2022 excess contribution. TurboTax will calculate the penalty for the 2020 and 2021 excess on Form 5329.

Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “Roth IRA”
On the "Do you have any Excess Roth Contributions" answer "Yes"
On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 and 2021.

Please request a regular distribution for the 2020 and 2021 excess (no earnings or losses) with your financial institution. You will receive a 2023 Form 1099-R with code J (if you are under 59 1/2) and this will be entered next year on your 2023 return and eliminate the excess.

Please request the withdrawal of the excess contribution for 2022 plus the earnings with your financial institution. This will have to be reported on your 2022 return. Only the earnings will be taxable.

You will get a 2023 Form 1099-R in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:

You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
You can report it now in your 2022 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 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 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 2022?"
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 2023 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 "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022"

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

DanaB27 · Answer

2020 and 2021 tax questions:1) Yes, you will have to fill out 2020 Form 5329 part IV to calculate the 6% penalty on the 2020 excess contribution (without earnings/loss).2)Yes, you will have to fill out 2021 Form 5329 part IV to calculate the 6% penalty on the 2020 + 2021 excess contribution (without earnings/loss).  2022 tax return. 1) Yes, you will have to fill out 2022 Form 5329 part IV to calculate the 6% penalty on the 2020 + 2021 excess contribution (without earnings/loss). You can use these steps to enter it into TurboTax:Click on "Search" on the top right and type “IRA contributions”Click on “Jump to IRA contributions"Select “Roth IRA”Continue through the questions until you get to the "Do you have any Excess Roth Contributions" screen and answer "Yes"On the "Enter Excess Contributions" screen enter 2020 + 2021 excess contribution.2) Yes, you will request a withdrawal of excess contributions plus earnings for the 2022 excess contribution. You will get a 2023 Form 1099-R with code PJ and this will have to be entered on your 2022 tax return. For the excess from 2020 and 2021, you will request a regular distribution (without earnings and losses) and will receive 2023 Form 1099-R with code J and this will be entered on your 2023 tax return. 3) Yes, You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions for 2022 and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return orYou can report it now in your 2022 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 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023. To create a Form 1099-R in your 2022 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 2022?"Select "I'll type it in myself"Box 1 enter total distribution (contribution plus earning)Box 2a enter the earningsBox 7 enter J and PClick "Continue"On the "Which year on Form 1099-R" screen say that this is a 2023 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 "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 2021" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.  4) On your 2023 return you will enter Form 1099-R with code J: Login to your TurboTax Account Click on "Search" on the top and type “1099-R” Click on “Jump to 1099-R” and enter all your 1099-RsClick "Continue" on the "Review your 1099-R info" screenAnswer all the questions and make sure you enter the net contributions prior to 2023 (direct contributions minus distributions, include the 2020 and 2021 excess contribution in this amount) on the "Enter Prior Year Roth IRA Contributions" screenAnswer the remaining question. 5) A) and B) Yes.5) C) No, you will have to have to report the regular distribution of the 2020 and 2021 excess on your 2023 tax return. But since you withdraw only contributions they won't be taxable. Please make sure that you enter your net contributions in the follow-up questions. Please see What happens if I made an excess Roth IRA contribution for additional information.  [Edited 3/16/2023 | 5:58 am PST]@michaeljordan198