Withdrawing excess 2021 Roth contribution - questions

[Proteus126]

All,


I contributed $7k to my Roth in January 2021. That was my 2021 tax year contribution. In doing my 2021 taxes a week ago I discovered that my earnings were too high and the entire $7k contribution was in excess.


I instructed my IRA custodian to withdraw both the $7k contribution and the associated $1k gains a few days ago.


I am following IRS form 8606 instructions, which say:

If, in 2021, you made traditional IRA contributions or Roth IRA contributions for 2021 (I did) and you had those contributions returned to you with any related earnings (or minus any loss) by the due date (including extensions) of your 2021 tax return (I did), the returned contributions are treated as if they were never contributed. Don’t report the contribution or distribution on Form 8606 or take a deduction for the contribution (I won't). However, you must include the amount of the distribution of the returned contributions you made in 2021 and any related earnings on your 2021 Form 1040, 1040-SR, or 1040-NR, line 4a. Also include the related earnings on your 2021 Form 1040, 1040-SR, or 1040-NR, line 4b. Attach a statement explaining the distribution.
​

I am fine with the above, except for the mechanics of the underlined text. When I try to enter the proper values on Form 1040 lines 4a ($8000) and 4b ($1000), TurboTax wants me to open and populate a 1099-R form. I don't have one, and since the withdrawal just happened a few days ago, I don't expect to receive a 1099-R from my IRA custodian until early 2023. Additionally, I am not sure if that 1099-R will be marked as being for tax year 2021 or 2022, although I think it should be marked for tax year 2021.



Am I supposed to create my own 2021 1099-R form for TurboTax purposes, file my 2021 taxes with an explanatory statement, and then ignore the 1099-R form I know is coming in early 2023?


Or, am I supposed to wait until I am doing my 2022 taxes (in Feb 2023) to report this event? [I don't believe so - I believe that this is all considered to have happened in the 2021 tax year].





A little guidance on the nuance would be much appreciated!

 

[pb4uski]

See https://ttlc.intuit.com/community/taxes/discussion/reporting-excess-roth-ira-contribution/00/1900728

Situation is one year earlier than your but the same principle applies. FWIW, I would chose the second option.

You will get a 1099-R 2021 in 2022 with codes P and J. This 1099-R will have to be included on your 2020 tax return and you have two options:

• You can wait until you receive the 1099-R 2021 in 2022 and amend your 2020 return or
• 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.

 

[Proteus126]

See https://ttlc.intuit.com/community/taxes/discussion/reporting-excess-roth-ira-contribution/00/1900728

Situation is one year earlier than your but the same principle applies. FWIW, I would chose the second option.

Thank you very much for the help. That looks to be the most useful summary of "things to do" that I've seen, and is from the TurboTax point of view. Since it doesn't capture every step, I'll have to fumble through a bit.

 

[Backpacker]

I had similar situation a year ago and just filed amended 2020 tax returns for both state and federal. I knew what the earnings were (for the overcontribution) at beginning of 2021 but wasn't confident that having investment income on tax returns not matching off to 1099's would red flag me. My state poked my 25 bucks per quarter for owing them additional taxes. If I had it to do over I'd send in a payment voucher asap instead of waiting on my amended return submission. Chalked it up to my own stupidity.