Excessive Roth Contribution

[badamczyk]

Turbo Tax flagged an excessive Roth contribution in 2024. I filed and paid by taxes on time. I just recently had the excess contribution removed. Do I need to file an extension, and/or an amended return? And how/where would I show that on an amended return?  Thank you.

[Cindy4]

If you didn't file for an extension already, the due date of your return was April 15.  If you didn't withdraw the excess prior to that due date you can't remove the penalty for 2024.  You don't need to file an amended return.  You should receive a 1099-R with a code P for the excess withdrawal to report on you 2025 return that will stop the penalties.  

Code P:  Taxable in prior year. This code applies to the portion of the distribution that consists of the initial excess contribution. It signifies that the excess amount is taxable in the year the contribution was originally made.
Code 8:  Taxable in current year. The earnings on the excess contribution are reported on a separate Form 1099-R with code 8. These earnings are taxable in the year they were distributed to you

Hope this helps!

Cindy

[badamczyk]

Thank you.

A couple of quick follow up questions.

1-I understand it was due in April, but I didn't remove it until September. Will I penalized just for those 6 months, or the entire year until I file my 2025 return?

2-Will I just pay taxes on the earnings on my 2025 return?

Thank you.

[dev145]

1. Unfortunately, penalty applies for full year if not withdrew before due date.

2. Earnings must be included in income in the year the excess or non-deductible contribution was deposited into your IRA. See below IRS link for more info. Looks at highlighted part. 

"If you timely filed your return without withdrawing the excess contributions, you can still make the withdrawal no later than 6 months after the due date of your tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” entered at the top. Report any related earnings for 2024 on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed)."

https://www.irs.gov/instructions/i5329#en_US_2024_publink13330rd0e1314:~:text=the%20entire%20balance...

I hope this information was helpful!

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