Earnings on Excess Roth IRA

Forum|Forum|4 years ago
April 3, 2022
11 replies
53 views

The taxpayer contributed $6,000 to a Roth in 2021. It turns out that $3,370 of this is excess. She will withdraw it, and its earnings by the due date of the return, but then as I understand it, the earnings are taxable income in 2021 subject to the 10% penalty.

If we assume she will be allowed a partial Roth contribution in 2022, can she leave the earnings in it and avoid reporting them as income and incurring the penalty?

If not, how do I report the earnings in ProSeries Professional? There is no 1099R for 2021.

Thank you.

ProSeries Professional

This topic has been closed for replies.

qbteachmt

Level 15

You can read the publications from the IRS, and/or use consumer resources, such as google this:

roth ira excess contribution removal

Removal before the due date of the return is how you avoid penalties; it's as if that never happened. That isn't going to avoid tax on earnings when earnings were made on the excess. And you might be thinking of how you can designate excess contribution as applicable to the upcoming (current) tax year, but earnings are not contributions; you cannot withdraw excess contribution and leave earnings as if they are the contribution.

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U

Username is two wordsAuthor

Level 5

Thanks, yes, that was my conclusion also. Actually, as far the 2022 contribution, we have given up on the idea of determining if she will be allowed one. Too uncertain.

rbynaker

Level 13

I always have a conversation (3-way call) with the client and the IRA custodian. The custodian should be able to tell you what amounts are going to be on the 2022 1099-R with code P (indicating that it's taxable in 2021). They can also tell you the EIN if you don't already have it.

Enter that into a 2021 1099-R Wks, scroll down a bit and there's a checkbox for "2022 1099-R with Code P" or something like that.

For a Roth the earnings will be taxable and subject to penalty (but it probably won't be much).

Rick

U

Username is two wordsAuthor

Level 5

Thanks Rick, I will give that a try! I was concerned about using a 100R worksheet when we don't really have a 1099R, when it will come next year. That some matching problem will be set off. Hopefully what you say will produce the right result. I'll let you know.

sjrcpa

Level 15

"That some matching problem will be set off."

The matching program doesn't care if you report more income than is on 1099s. Only if you report less.

The more I know the more I don’t know.

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