We are currently working through a 2025 tax return and have discovered errors made while filing 2024 that are affecting 2025 return. Here is best effort to describe the situation:
- Husband and wife always file a joint return and have made Roth IRA contributions for several years
- While filing 2024 taxes (in February 2025) discovered that total income exceeded the income limit for making Roth IRA contributions in 2024, and consequently had created an excess contribution situation
- Contacted brokerage firm and backed out $8,000 each for husband and wife, plus approximately $1,100 of interest earned (so about $9,100 each)
- Brokerage firm sent letters explaining the removal of the 2024 excess and interest effective Feb 20, 2025, so the excess contributions were removed before April 15, 2025.
- Brokerage firm also indicated they would send a 1099-R in 2025 for these two transactions.
- Not knowing quite how to handle this situation on the tax return, we turned to the TurboTax community for assistance.
- Discovered several examples illustrating similar situations for which TurboTax experts offered two options: 1) Wait until the 2025 1099-R comes in, report the 2024 excess in 2025 and amend 2024 if needed; or 2) use the amounts we received from our broker, create manual 1099-R’s in TurboTax for 2024, and ignore the 1099-R’s when they come in
- We chose to create manual 1099-R’s in the TurboTax software and include in our 2024 return
- We entered gross distribution in Box 1, taxable amount in Box 2, left Box 2b unchecked, and there was no state or federal withholding amount. But we mistakenly used Distribution Code 8 in Box 7.
- Now we have received 2025 1099-Rs, both of which show gross distribution in Box 1, taxable amount in Box 2 and Distribution Codes of P and J in Box 7.
- Looking back at the 2024 return, the codes used in 2024 filing appear to have pushed the excess back to 2023. And also it appears there was a 6% penalty in 2024, I'm assuming because the we used Distribution Code 8 in Box 7.
- TurboTax is also offering to credit the Roth contributions to 2025 since the software thinks we didn’t remove the excess, I'm guessing because we used the wrong distribution codes on the self-created 1099-R’s.
So we need help. Seems like we could amend 2024, delete the 1099-Rs entered manually and just report the new 1099-Rs for 2025. Or we could file an amendment for 2024, modify the 1099-R’s to reflect the numbers on the 2025 1099-Rs, but neither of those scenarios seems to make fix the issues in TurboTax.
Thank you so much!
