1099-R shows Code J for Roth excess contribution — how to proceed in TT even if custodian won’t correct?

[hayhay]

I contributed $7,000 to a Roth IRA in 2024, then realized I was ineligible. I withdrew the full $7,000 plus $3,059.08 in earnings before the tax deadline. I requested my IRA custodian to process it as a return of excess contribution, but they issued a 1099-R with Code J and will not correct it.

[DanaB27]

If you requested the return of excess contribution but they issued a 2024 Form 1099-R with code J and refuse to correct it then you can file a substitute Form 1099-R. 

Form 1099-R instructions state: For the distribution of excess Roth IRA contributions, report the gross distribution in box 1 and only the earnings in box 2a. Enter Code J and Code 8 or P in box 7.

To confirm you made the contribution for 2024 and returned it in 2024? If yes, then your Form 1099-R should have codes J and 8.

In TurboTax Desktop:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc." and check "I need to prepare a substitute 1099"
7. Box 1 enter total distribution (contribution plus earning)
8. Box 2a enter the earnings
9. Box 7 enter J and 8
10. Click "Continue"
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

In TurboTax Online:

1. Click on "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R” 
3. Select "Type it myself"
4. Fill out Form 1099-R with code J and 8
5. Continue through the questions until the "Do any of these situations apply to you?" screen select "I need to file a substitute 1099-R"
6. Click "Continue" after all 1099-R are entered and answer all the questions.
7. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

[hayhay]

Thank you for your response. Is there a different way than creating a  substitute Form 1099-R? the 1099-R is technically correct ( have the correct dollar amount pulled from the account which is the excess + earnings)  and that’s how the IRS expects it to be coded when the proper procedure isn’t followed. Also filing 4852 could raise red flags
If its to change the code or change how it’s classified, the IRS may delay the return, request documentation and possibly view it as a misreporting of tax forms?

If I want to report the excess as income how to attach the explanation statement in Turbotax for efile?

[DanaB27]

To clarify, the Form 1099-R has code J, the distribution amount listed in box 1 and box 2a blank? Did your financial institution explain why they issued a form for a regular Roth IRA distribution despite your request to process it as a return of excess contribution?

If you choose not to file a substitute Form 1099-R then you will have to enter the Form 1099-R has shown. Technically since this shows a regular distribution and doesn't show the earnings as removed you have to pay the 6% penalty on your 2024 return. You can only avoid the 6% penalty if you withdraw the excess contribution plus earnings.

1. Click on "Search" on the top and type “1099-R” 
2. Click on “Jump to 1099-R” and enter all your 1099-Rs
3. Click "Continue" on the "Review your 1099-R info" screen after you entered all you Form 1099-R
4. Answer "Owned Any Roth IRA for Five Years?" screen
5. Continue through the questions and make sure you enter the net contributions prior to 2024 on the "Enter Prior Year Roth IRA Contributions" screen 
6. On the "Any Roth IRA Conversions?" screen answer "Yes" if you made conversions before 2024
7. Continue through the questions.

You cannot add an explanation statement without adding a Form 1099-R with code 8J or PJ.

[fanfare]

I seems you did your own calculation of the allocable earnings, then took it all out yourself.

In which case, the custodian's 1099-R is correct.

you can't resolve an "excess plus earnings" without the custodian's help  unless you make up a  replacement 1099-R showing the excess plus earnings

Report the distribution and allocable earnings on your 2024 tax return.

Any red flags are of your own doing. There's no provision for an explanation at tax filing.