2024 Roth Contribution showing excess contribution when it isn't

[AudreyS]

I have input $7,000 on Roth IRA contributions worksheet line 19.  My income is above this amount but below the maximum allowed. I did not input anything on lines next lines and it is saying that I have an excess contribution of $4570! and put tax on it.

I have deleted the form and tried again and get the same response. 

Suggestions?

Audrey 

[DaveF1006]

Yes, because of your income, the contribution may be limited. Here are the income limits as well as reduced contributions.

2024 Roth IRA Income Limits

Single, Head of Household, or Married Filing Separately (did not live with spouse)

• Full contribution: MAGI less than $146,000
• Reduced contribution: MAGI $146,000 - $161,000
• No contribution: MAGI above $161,000

Married Filing Jointly or Qualifying Surviving Spouse

• Full contribution: MAGI less than $230,000
• Reduced contribution: MAGI $230,000 - $240,000
• No contribution: MAGI above $240,000

Your income level may have fallen in the category of reduced contribution and if that is the case, your contribution was limited.

[AudreyS]

Thank you.  This does appear to be the cause.   Can I give back the excess Roth contribution and reduce the tax?  If I don't give excess Roth contribution, will this haunt me forever?

Audrey

[DanaB27]

You can avoid the 6% penalty by requesting the return of excess contribution plus earnings by the due date. Please see What if I made an excess Roth IRA contribution for additional options. 

If you do not remove the excess contribution then the excess contribution is taxed at 6% per year for each year the excess amounts remain in the IRA. But the tax can't be more than 6% of the combined value of all your IRAs as of the end of the tax year.

If you made an excess contribution in 2024 and withdrew the 2024 excess Roth IRA contribution plus earnings in 2025 before the due date, then you will get a 2025 Form 1099-R in 2026 with codes P and J. This 1099-R will have to be included on your 2024 tax return and you have two options:  

• You can wait until you receive the 2025 Form 1099-R in 2026 and amend your 2024 return or
• You can report it now in your 2024 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2025 Form 1099-R into the 2025 tax return since the withholdings are reported in the year that the tax was withheld. The 2025 code P will not add anything to your income in the 2025 tax return but the withholdings will be applied to 2025.

To enter a 2025 Form 1099-R in your 2024 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2024?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2025 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. 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".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2023" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.

Also make sure you indicate in the IRA contribution interview that you withdrew the excess contribution by the due date:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth IRA contribution
5. Continue until the penalty screen and enter the excess contribution amount withdrawn.