Confused about my Roth IRA excess contribution removal - shows as 2023 distribution?

Hey everyone! I messed up in 2022 and accidentally contributed $7,500 to my Roth IRA (the limit was $6,000). So I was over by about $1,500. Once I realized my mistake, I contacted my investment company and they removed the excess plus the earnings and sent the required taxes to the IRS in March 2022. When I filed my 2022 taxes, I reported that I only contributed $6,000 to my Roth IRA (not $7,500) because I thought that if you fix an excess contribution before filing, it's like it never happened. But now I'm totally confused because my Roth IRA statement shows the excess amount plus earnings as a 2023 distribution! I expected this would have been recorded as a 2022 distribution since I fixed everything before the 2022 tax deadline. Is this normal? Should I be concerned that something wasn't processed correctly? Do I need to amend anything for my 2022 return or will this affect my 2023 taxes somehow? Thanks so much for any insights!!

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18 comments

Vince Eh

•8M

This is actually a common source of confusion with Roth IRA excess contribution corrections. When you remove an excess contribution, the timing of when it appears on your statements depends on when the distribution was processed, not when you made the original contribution. If your investment firm processed the removal in early 2023 (even if you requested it in 2022), they would report it as a 2023 distribution. The key thing to understand is that the IRS considers the excess contribution "fixed" as long as you took action before your tax filing deadline (including extensions), but the actual distribution paperwork follows normal tax year reporting rules. For your 2022 tax return, you were correct to report only the $6,000 contribution. For your 2023 taxes, you'll receive a 1099-R showing the distribution, but you'll need to indicate that it was a returned excess contribution from a prior year so you don't get double-taxed on the earnings portion.

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Vince Eh

•8M

For your 2023 taxes, you'll receive a 1099-R from your investment firm showing the distribution. You typically won't need to file Form 5329 for 2023 since you already properly removed the excess contribution before the deadline for 2022. The 1099-R should have the appropriate distribution code (usually Code P for excess contributions plus earnings) that indicates this was a return of excess contributions. When entering this 1099-R in your tax software, you'll need to make sure you select the option that indicates this was a return of a prior year's excess contribution. This tells the IRS not to treat it as a normal distribution or early withdrawal subject to penalties.

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Tobias Lancaster

•8M

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Tobias Lancaster

•8M

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Everett Tutum

•8M

I made the same mistake a few years ago. One important thing to remember is that you'll need to account for the earnings on your excess contribution separately from the contribution itself. The earnings are considered taxable income in the year the distribution is made (which seems to be 2023 for you). When you get your 1099-R for 2023, it should break down how much was the excess contribution (not taxable) and how much was earnings (taxable). Make sure this matches what you expect!

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Everett Tutum

•8M

Yes, the 10% early withdrawal penalty does typically apply to the earnings portion if you're under 59½. So in your case, with approximately $75 in earnings, you'd owe regular income tax on that $75 plus an additional $7.50 as the 10% penalty. When you file your 2023 taxes, your tax software should walk you through this if you indicate that the distribution includes earnings from an excess contribution. Just make sure you enter the 1099-R information correctly and specify that it was a return of excess contributions from a prior year.

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