1099-R with incorrect code for withdrawal of excess Roth IRA contribution

[LA888]

I made a Roth IRA contribution in 2023 with after-tax money and then withdrew it in March 2024 due to exceeding the income limit.  The 1099-R for 2024 indicates code "T" rather than code "P," so Turbotax is counting it as income.  I've spoken with the custodian and they will not change the code on the 1099-R, though there is evidence of the withdrawal and removal of the small amount of associated income from the Roth account.  What should I within Turbotax do to avoid double-taxation on this money, and is there anything else I should do to avoid issues with the IRS on this matter?

[DanaB27]

To clarify, you requested the withdrawal of excess contribution plus earnings with the financial institution (usually they have a form to fill out)? Did you report the earnings on your 2023 tax return?

If yes, then they should have issued a Form 1099-R with codes P and J. You should show them the Form 1099-R instructions:

"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."

If you only took a regular distribution for the excess amount without earnings then they issued the correct Form 1099-R and you will have to enter it on your 2024 return. You would have to pay the 6% excess contribution penalty on your 2023 return. Pease see How do I amend my federal tax return for a prior year? 

To enter Form 1099-R with code T:

1. Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter all your 1099-Rs
4. Click "Continue" on the "Review your 1099-R info" screen after you entered all you Form 1099-R
5. Answer "Owned Any Roth IRA for Five Years?" screen
6. Continue through the questions and make sure you enter the net contributions prior to 2024 on the "Enter Prior Year Roth IRA Contributions" screen
7. On the "Do you have any Excess Roth Contributions" answer "Yes" 
8. On the "Enter Excess Contributions" screen enter the total excess contribution from 2023.

Please note if you had the Roth IRA for 5 years, then this is a Qualified Distribution and not taxable. If you had the Roth IRA less than 5 years you can withdraw contribution anytime, tax- and penalty-free. Therefore, you won't have any double-taxation.