REMOVAL OF EXCESS ROTH CONTRIBUTION PRIOR TO TAX FILING

Submitted by Paul Avegno on Mon, 2023-03-27 15:00

In January 2022 an individual made a current year Roth contribution. In March 2023 she realizes her income exceeded the limits and removed the excess Roth contribution with a loss. The Roth Custodian is stating the transaction will be reported in 2023 as a prior year removal of excess contribution. Is this correct? Should the client submit anything else with her 2022 tax return regarding the removal of the excess contribution?



Submitted by Alan - IRA critic on Mon, 2023-03-27 15:28

  • Yes, the custodian is correct. The 2023 1099R will be issued in Jan, 2024 with Code PJ. An explanatory statement describing the amount and year of the original contribution and stating that the contribution was returned net of investment loss in March, 2023 and the amount received. This lets the IRS know that the excess was corrected prior to 2024. Form 8606 does not apply. If the 1099R received in Jan, 2024 is coded as above, none of this needs to be reported on the 2023 return.
  • NOTE: Had there been gains instead of the loss, the gain would have to be included on the 2022 return, so many tax programs suggest that the prior year return must be amended if it had been filed. That is not the case here.

Submitted by Bruce Steiner on Wed, 2023-04-19 20:08

What if there’s an excess Roth contribution for 2022 made in January 2023, and withdrawn with the appropriate amount of gain in February 2023?  Does the gain go on the 2023 return?

Submitted by Alan - IRA critic on Wed, 2023-04-19 20:14

Yes, the gain is taxable for the year IN WHICH the excess contribution is made. Further, if there is a gain Sec 333 of Secure 2.0 eliminates the 10% penalty on all corrective distributions of earnings distributed after the date of enactment. The 1099R issued for this in Jan, 2024 should be coded accordingly.

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