I was not aware I am not able to contribute to a Roth IRA and IRA. in 2023 and 2024. When I filed taxes in 2023, I did not report this. Now in 2024, I contributed $950 each to both accounts and I am still not working. Can I pay the 6% penalty and not withdraw this amount? Then, when I file my taxes for 2025, I can withdraw it?
If you do not withdraw the excess contribution, you must report them each year on form 5329 and pay an excise tax of 6% for every year the excess remains in your account.
You need to amend your 2023 return and pay the penalty. It is too late to remove the excess.
For 2024, your penalty is the combined total of your 2023 and 2024 contributions, because both are excess. This won't be figured correctly by Turbotax unless you manually tell the program you had uncorrected excess contributions from the previous years.
Do you plan on resuming work? If you work in 2025, then you could leave the excess in the account, pay the 6% for 2024, then apply the excess as a 2025 contribution and "use up" the excess. (Or you can contribute based on a spouse's work income to use up the excess.) However, if you don't plan on working again, you will pay 6% on the combined excess for every year the excess is still in the account.
You can remove the 2024 excess by a special procedure before April 15. The 2023 excess can't be removed that way, you have to leave it in the account until after April 15 and then remove it by a different procedure.
I am currently looking for work. I already stopped the IRA contributions going forward.
In 2024, the total contributions was $950 for Roth IRA and $950 to the Traditional rollover IRA. This means, I need to withdraw a total of $1900 for excess contributions?
@RNTAX2025 wrote:
I am currently looking for work. I already stopped the IRA contributions going forward.
In 2024, the total contributions was $950 for Roth IRA and $950 to the Traditional rollover IRA. This means, I need to withdraw a total of $1900 for excess contributions?
You said you also made contributions in 2023? How much, and is that included in the $950/$950?
In 2023, I made contributions for a total of $2400. I was working until May when I got laid off.
@RNTAX2025 wrote:
In 2023, I made contributions for a total of $2400. I was working until May when I got laid off.
OK, your original question was unclear about 2023, so 2023 would not be excess.
For 2024, you can
A. Leave the excess contributions in the account and pay the 6% penalty. If you find work in 2025, the 2024 excess can count as part of your 2025 contributions so they won't be considered excess next year.
Or,
B. Remove the excess before April 15. This is a special procedure, not a regular withdrawal and you have to ask the IRA custodian specially. They must return to you the excess contribution and any earnings that are attributable to the excess contribution (they have a formula to use). The earnings (from 2024 contributions) are taxable on your 2024 return even though the excess is not actually returned to you until 2025. There is a procedure to report this in Turbotax.
Hello, I have requested the excess contribution from Fidelity. This would $950 from Roth IRA and $950 from the Rollover IRA, correct? It would be okay to file my taxes now or I have to wait until I get the taxes amount on the earnings? As soon as I removed the excess contribution amounts, the 6% penalty is gone. I am not sure how to report the earnings. There is not much since the amount sat in a cash amount. Please let me know. Thank you.
@RNTAX2025 wrote:
Hello, I have requested the excess contribution from Fidelity. This would $950 from Roth IRA and $950 from the Rollover IRA, correct? It would be okay to file my taxes now or I have to wait until I get the taxes amount on the earnings? As soon as I removed the excess contribution amounts, the 6% penalty is gone. I am not sure how to report the earnings. There is not much since the amount sat in a cash amount. Please let me know. Thank you.
You need to wait until you get the money, or at least until you know what the dollar amount of the returned earnings will be.
For the Roth IRA
1. Start by reporting the Roth contribution. When Turbotax says it's excess, tell Turbotax you will remove the excess on time. That will remove the 6% penalty.
2. Then, go to the retirement income section and create a substitute 1099-R for the withdrawal, since you won't get an actual 1099-R until next year. Put the entire amount of the withdrawal in box 1, and the taxable amount (attributed earnings, as calculated by the IRA custodian) in box 2a. Enter codes P and J in box 7. You will pay income tax on the earnings, but they are not subject to an additional 10% penalty for early withdrawal. The returned contribution is not taxable.
For the traditional IRA:
1. Start by reporting the IRA contribution. When Turbotax says it's excess, tell Turbotax you will remove the excess on time. That will remove the IRA tax deduction and the 6% penalty.
2. Then, go to the retirement income section and create a substitute 1099-R for the withdrawal, since you won't get an actual 1099-R until next year. Put only the interest amount in box 1 and the same amount in box 2a. Enter codes 2 and P in box 7. You will pay income tax on the earnings, but they are not subject to an additional 10% penalty for early withdrawal.
on the Fidelity website, it shows the EXCESS CONTRIBUTION amount with the Federal and State tax deductions. When I input the Gross Distribution, this would be the EXCESS CONTRIBUTION, correct? Also, for 2A on the 1099-R form, for taxable amount , what amount do I put? I need some clarity on what to put on the 1099-R form.
Thank you.
The gross distribution would be the amount you receive, excess contribution plus earnings. You would also put the earnings in box 2a. You need to ask Fidelity what that amount is.
For the gross distribution, this would be the excess contribution amount and the Taxable amount would be the excess contribution plus earnings. I got both of those amounts. Fidelity did deduct State and Federal taxes. In this case, I need to put in box 4 for Federal Income Tax and box 14 for State tax withheld?
Thank you.
No, you do not enter the withheld taxes on the 2024 return. The withholdings are reported in the year that the tax was withheld, therefore you will have to enter the 2025 From 1099-R also on your 2025 return. The 2025 code P will not add anything to your income in the 2025 tax return but the withholdings will be applied to 2025.
Hello, thank you for your guidance. To confirm, on the 1099-R form, i just need to enter in number 1 for Gross distribution and number 2a for Taxable amount? I will not enter in the Federal and State taxes withheld and input that for my 2025 return. Is this understanding correct?
Hello,
Thank you for clarifying that I do not need to input the State and Federal taxes withheld on the 1099-R form since it will be applied to my 2025 tax return. For the box 2A, taxable amount, do I need to input this amount?
This would be the Gross Distribution minus my total excess contributions, correct?
For excess IRA and Roth IRA contributions, do I only need to input t the Gross Distributions amount (box 1) and the Taxable amount (box 2a) into 1099-R form?
Thanks!
for the substitute 1099-R form for both IRA and Roth IRA, can you please confirm the correct selections for box 7?
Excess IRA contribution - Box 7 is selection number 2 for Early distributions, exception applies, what is the second selection?
Excess Roth IRA contribution - Box 7 is selection number 2 for Early distributions, exception applies, what is the second selection?
thanks!
@RNTAX2025 wrote:
for the substitute 1099-R form for both IRA and Roth IRA, can you please confirm the correct selections for box 7?
Excess IRA contribution - Box 7 is selection number 2 for Early distributions, exception applies, what is the second selection?
Excess Roth IRA contribution - Box 7 is selection number 2 for Early distributions, exception applies, what is the second selection?
thanks!
No. For the excess Roth, use code P and J, not code 2. For the traditional IRA, use code 2 and P.
For the Rollover IRA, number 7 is selection 2 and P. It says P is for Return of contribution taxable in 2023. Shouldn't this be 2024? Please confirm.
Thank you!
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.
@RNTAX2025 wrote:
For the Rollover IRA, number 7 is selection 2 and P. It says P is for Return of contribution taxable in 2023. Shouldn't this be 2024? Please confirm.
Thank you!
Technically yes, but that's normal in this situation. In January 2026, you will get a 1099-R that matches the substitute you are creating now, and on that 1099-R, code P will mean "return of contribution taxable in 2024", which is the tax you are paying now.
Hello, for the excess IRA contribution, Fidelity did send home a letter showing the amount that was returned to me plus the applicable earnings. However, for the excess Roth IRA contribution, they did not. All I see is the excess contribution return amount and not applicable earnings. Is this correct for a Roth IRA?
In this case, do I just input the Gross Distribution amount for the Roth IRA excess amount and for selection 2a, I leave blank and 2b, I put taxable amount not determined?
@RNTAX2025 wrote:
In this case, do I just input the Gross Distribution amount for the Roth IRA excess amount and for selection 2a, I leave blank and 2b, I put taxable amount not determined?
For either IRA, the total distribution is box 1, and the taxable amount (earnings) goes in box 2a.
If the Roth IRA had no return of earnings, then box 2a would have a zero. However, is that a reasonable answer or do you need to contact the Roth IRA custodian and speak to someone else? If you only had the money in there a few days and it was held in a cash account by default, then zero earnings is reasonable. It would also be correct if your investments lost money between the date of the contribution and the date of the withdrawal. But if the investments gained money, there must be part of the gain attributed to the contribution.