Calendar 2025 Excess IRA Contribtution

[Wyldaisy]

Hello,

In June of 2025, an $8,000 traditional IRA contribution was made for calendar 2025. The self employment earnings significantly decreased in calendar 2025, resulting in the max allowable contribution in calendar 2025 to be $4,500, so the calendar 2025 contribution has been over funded by $3,500.  The taxes for calendar year 2025 have not been filed yet, so I intend to contact Fidelity today to correct the over funding and have the excess $3500 contribution removed and any interest earned.  I anticipate the interest earned will be about $70? --> ($3500 x 4% annual interest for 6 months).

If Fidelity corrects the over funding today, can I proceed through Turbo Tax as if there were no over funding at all since the over funding was corrected in the same year?  The 1099 statement that was already issued will not include the $70 in interest.

Or, will I have to file a form 5329 under all circumstances, note the $3500 over funded correction in the same calendar year for 2025 tax reporting, and show the additional taxable interest income on the form 5329.  If this is the case, will Turbo Tax prompt through all of these questions so all the correct forms are generated?  

Thank you!

[RobertB4444]

Yes, you should report the $3500 of overfunding this year.  You will also tell the system that you drew out the overfunded amount before the due date of the tax return along with the earnings.  You will be taxed on the earnings but because you corrected the mistake you won't pay any penalties on the overfunding.  The system will walk you through all of it.  

[Wyldaisy]

A form 5329 was generated but only populated with the box 16 "A" that includes the amount of the traditional IRA as of 12/31/2025 (before the correction).  No other fields are populated.

Form 1099-R also populated, but it only includes information related to an inherited IRA that had a required minimum distribution, nothing related to the transaction of the over funded IRA.

The IRA contribution worksheet notes the $8000 on line 1 and line 5, the $3500 correction on line 6 and the total contribution of $4500 on line 9.  Line 12 and 16 are also populated with $4500

I think all of these forms are okay(?), but what I can't figure out is how and where to add the $96 of interest that was also withdrawn when the $3500 was withdrawn (in calendar 2026).  Everything I read says it is taxable in 2025 (even if corrected in 2026), but Turbo tax did not prompt me to enter it anywhere.

[Wyldaisy]

HI, Update to my question:

Fidelity says that the $96.71 of income earned on the $3500 that was over contributed in calendar year 2025 (corrected in March 2026) will show on a 1099-R for calendar year 2026.  There will be no other 1099 issued in 2025 related to this transaction from fidelity.

Does this mean I just wait until the $96.71 shows up on a 1099-R in 2026 to pay the taxes on this amount in calendar 2026 as calendar 2026 income...or..is there anything I need to report in calendar 2025 related to the $96.71 income and if so, where and how if Fidelity will not be issuing any further 2025 tax forms or corrected forms. 

Thank you!

[AmyC]

No, you must report the $96.71 earnings on 2025 tax return. Next year, you will get a 1099-R with the amount and a code showing it was taxable in 2025 with a code P. Which means if you did not include the income this year, you would have to amend 2025 next year since this is the year where the income belongs.

Since you have to add the income, you will need to enter a 1099-R this year for that amount. You can use your broker's information to enter details like broker name, address, EIN, etc.

1. Box 1 gross distribution $3,596.71
2. Box 2a taxable amount $96.71
3. Box 7 code P to let the IRS know you took it in 2026 for prior year.
4. Penalty Exception: If TurboTax tries to apply a 10% early withdrawal penalty on the $96.71, continue through the screens until you reach "Special Situations" or "Penalty Exceptions."
5. Select the exception for "Corrective distributions made before the due date of the return." This will zero out any penalty on Form 5329.

[Wyldaisy]

Hi, I manually added a 1099-R for 2025 (Fidelity will not issue this until 2026)

1. Wages & Income, Retirement Plans and Social Security (1099-R)
2. 1099-R, with the gross distribution in Box 1  - $3,597
3. Earnings in Box 2a -  $97
4. Select Code 8 for Box 7
5. Check the IRA/SIMPLE/SEP box

A couple of questions:

1. When I did a final Federal Review - an ERROR generated:
   1. Check this entry - Form 8606-T - Detailed Explanation Statement must be completed.  Enter explanation here to complete the return of IRA or ESA contribution before the due date of the tax return. 
      1. Should this form have been generated and do I need to add a response that this was to correct an excess contribution in 2025?
2. This return also includes a separate transaction for a different retirement account - a $5,000 RMD on an inherited IRA.  The tax return properly treated the entire $5,000 of this RMD as taxable.  But prior to me manually generating the 1099-R for the traditional IRA correction, the 1040 had $0 in Box 4a and $5,000 in box 4b.  But once I created the manual 1099-R, box 4a now had $8,597 and box 4b had $5,097.  Not sure why box 4a had Nothing before I manually added the $3,597 in the 1099-R and now the 1040 has both amounts added together.  The $5,097 in box 4b seems correct.

Form 1040 after manual 1099-R:

1. Box 4a $8,597
2. Box 4b $5,097

1099-R - Inherited IRA distribution

1. Box 1 $5,000
2. Box 2a $5,000
3. Box 7 - code 4
4. IRA/SEP/Simple - checked

1099 - R - To correct excess contribution (manually entered)

1. Box 1 $3,597
2. Box 2a $97
3. Box 7 - Code 8
4. IRA/SEP/Simple - checked

Form 5329

1. Box 16 - A  Traditional IRA Value Smart Worksheet
   1. The value of the traditional IRAs on December 31,2025. Include any contributions made after 12/31/2025 that were for 2025.
2. The only amount that is populated in here is the balance of the traditional IRA (it does not include the amount from the inherited IRA, should it?) as of 12/31/2025 BEFORE the removal of the $3,500 that occurred in March 2026.
3. There are no other boxes populated on the 5329 so I assume a penalty was not calculated.

IRA Contribution Worksheet:

1. Box 1 - $8,000
2. Box 5 - $8,000
3. Box 6 - $3,500
4. Box 9 - $4,500
5. Box 12 - $4,500
6. Box 13 - $0
7. Box 15 - $0
8. Box 16 - $4,500
9. Box 18 - $0

Not sure if all of these entries look correct?

Thank you for your help!

[Wyldaisy]

I started over and was able to enter a 1099-R but Turbo tax wanted to do it through Form 4852 that required explanation of why this was necessary.  I noted:

Form 4852

• How were the amounts calculated:  Fidelity calculated the amounts
• Explain efforts to get the form 1099-R:  Fidelity will send Form 1099-R in January 2027

Form 5329 - Explanation Statement

• Return of IRA contribution before the due date of the tax return. A return of excess  contribution for calendar 2025 before the filing deadline.

Form 8601 Did Not Generate 

Do these forms and responses seem reasonable 🙂

[Wyldaisy]

I apologize for all of the posts, I am just confused.

I read other posts that said I should not have checked the box that said 'substitute' 1099-r, so I removed that check and now for 4852 is gone. 

I recreated the manual 1099-R that I am populating with the boxes Amy C noted above.

But another box popped up when I entered this manually and said if there is a code P or R in box 7 - what year is the 1099-R for - Year 2025 or Year 2026.  What year should I answer?

[Wyldaisy]

... ugh, I changed Box 7 to include code 8 as Amy stated - and removed the P and the question regarding 2025 2026 went away.