If you choose the option to withdraw the excess contribution and avoid the excise tax penalty, then this is how you'll proceed. There will be no penalty in 2024 or in future years.
If you withdrew your 2024 excess contribution to your Roth IRA before the due date of the 2024 tax return (April 15, 2025), make sure that you also withdraw the related earnings.
On your 2024 tax return, you do not report the excess contribution as it has been withdrawn. The earnings have to reported and taxed in 2024,
For this, you would create a 2025 form 1099-R with the total distribution (excess plus earnings) in box 1, the earnings in box 2a and code PJ in box 7. You then enter this 1099-R on your tax return, and the earnings will be taxed. When entering this form 1099-R, make sure to indicate that the year on the form is 2025, as this is a replica of the form you will receive for year 2025 in 2026.
If there is a loss, that loss is not deductible.
When you receive the 2025 form 1099-R with code PJ in box 7 (in 2026) for this withdrawal, there is no further action needed.
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