Roth IRA Excess Contribution
Client contributed to his Roth IRA in 2023 and income ended up fully over the limit so none of the contributions were allowed. We have removed the over contributions + NIA here in March 2024. The IRA custodian will provide a 1099-R in January. This client does his own taxes so I want to provide a little broad guidance. How if at all does he report this on his 2023 return? He has not submitted his return yet and again, the excess contribution + NIA has been removed before his tax filing deadline. Appreciate the guidance.
Permalink Submitted by Alan - IRA critic on Wed, 2024-04-03 02:56
Because the returned contribution was made in 2023, any gains generated on that contribution will be taxable on the 2023 return and the 1099R issued next January will be coded to show that the income year is 2023. If client uses retail software to file for 2023, he will have to enter a dummy 1099R to generate the taxable income on any gain that will show up on line 4b of Form 1040, full gross distribution on 4a. There is no longer a 10% penalty on the taxable gain.