Excess Contribution made to Roth IRA in 2024 for tax year 2023 and removed in Jan 2025

[KCBTax]

Hi @DanaB27

Please excuse me tagging you, but I'm following your advice from other posts and just need a little help to finish my filing.

I was following your 12 steps for filing an excess Roth IRA contribution, but my scenario is slightly different and I think I may need to leave the "Corrective distributions made before the due date of the return" blank.

In April 2024 my daughter made an excess contribution to her Roth IRA for tax year 2023 due to contributing more than her income. The excess amount was $1330.89. The earnings were $276.30. Total amount returned by Fidelity in January 2025 (when we realized the error) was $1607.19.

Fidelity said the earnings will be reported as taxable income for the year in which the excess contribution was made. That contribution was made in 2024 for the 2023 tax year. But Fidelity won't send a 1099-R until January 2026.

We are following your recommendation to file now for the 2024 tax year instead of amending a return next year.

For the 1099-R, in boxes 1-16, I manually entered:

Box 1 $1607.19

Box 2a $276.30

Box 7 J-Early distribution from a Roth IRA and P-Return of contribution taxable in 2023

(are these the correct codes I should use?)

All other boxes are empty

I chose 2025 for the year of the 1099-R

(is that correct?)

I don't think I should be entering the $276.30 into "Corrective distributions made before the due date of the return" because this contribution was made in 2024 for tax year 2023, but the excess was not removed until Jan 2025. Shouldn't the due date for this removal have been in 2024 to use this?

If I leave this field blank it says $28 federal tax due

(I think that is a 10% penalty on the earnings)

If I enter the $276.30 into that field it says $0 federal tax due. But I think I am supposed to pay the penalty.

Can you let me know how to file this?

Thanks for your advice!

[DanaB27]

Since the excess was removed after the due date of the 2023 tax return you daughter should have requested a regular distribution without earnings. The financial institution shouldn't have accepted a return of a 2023 excess contribution plus earnings after the extended due date. Please check with Fidelity about this error.

A regular distribution to fix a excess contribution after the due date will be reported in the year you withdrew the excess, so in your daughter's case on the 2025 tax return.

Since the excess wasn't removed until 2025 you daughter will have to pay the 6% penalty on her 2023 return and also on he 2024 return unless she can apply the excess as a 2024 contribution.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2023 (if it wasn't carried over).
6. On the "How Much Excess to 2024?" screen enter how much you want to apply to 2024.

[KCBTax]

Hi DanaB27

she has already made the max contribution up to her earnings for 2024 in January 2025. We found the error after we’d made the contribution for tax year 2024.

oh no, I just read the fidelity page and it is an untimely correction.

they should’ve just removed the excess contribution and no calculation of gains was required.

i will call them to see if that can be fixed or not.

if it can, would we have to file a 2024 tax return and a 2023 tax return?

(btw she has never needed to file a return before).

Thanks for your advice

[KCBTax]

Hi @DanaB27 

I just spoke to the fidelity retirement team and discussed that they may have made a mistake and they verified the following twice with backoffice.

They said that because the contribution was made in 2024 (even though it was for the 2023 tax year), that as it was removed in Jan 2025 before the April 2025 tax deadline for 2024 tax year, it is a timely correction.

They said that in the 1099-R that we will receive in January 2026, it will have codes J and 8 (not J and P).

Knowing this, what should I put in turbotax?

I put $1607.19 in box 1

$276.30 in box 2

box 7 was code J and code 8.

I did not enter any other information in the other boxes.

Then in the section "did you use IRA to pay for any of these expenses", I entered $276.30 in Corrective distributions made before the due date of the return.

Is that correct as it says $0 tax due?

If I leave that blank it says $28 is due which is 10%.

What should we be entering there?

They said no penalty would be due, but we'd pay tax on the earnings. She only has around $3k in income for tax year 2024, is that why the earnings are not causing any extra tax?

Thanks for your advice

[DanaB27]

I don't agree with Fidelity. Form 5329 line 23 instructions page 6 states:

"Enter the excess of your contributions to Roth IRAs for 2023 (unless withdrawn—discussed below) over your contribution limit for Roth IRAs. See the instructions for line 19, earlier, to figure your contribution limit for Roth IRAs. Don’t include rollovers in figuring your excess contributions.

You can withdraw some or all of your excess contributions for 2023 and they will be treated as not having been contributed if:

• You make the withdrawal by the due date, including extensions, of your 2023 tax return; and
• You withdraw any earnings on the withdrawn contributions and include the earnings in gross income (see the Instructions for Form 8606 for details). Also, if you hadn't reached age 59½ at the time of the withdrawal, include the earnings as an early distribution on line 1 of Form 5329 for the year in which you report the earnings. Report this amount on line 2 and enter exception number 21."

If your daughter isn't required to file a tax return, then she can file 2023 Form 5329 and 2024 Form 5329 by itself to pay the 6% penalty. Please see Form 5329 instructions. Please see Do I need to file a federal return this year?

The 2025 Form 1099-R will have to be entered on the 2025 tax return and not the 2024 return. If Fidelity doesn't correct the 2025 Form 1099-R then you can either enter it as shown on the form or enter a substitute Form 1099-R with code J only and explain that Fidelity refused to correct the form.

[KCBTax]

Hi @DanaB27 

Thanks for all your advice. I have the following questions.

I can see based on your comments in my post and other posts that a 6% penalty is due for 2023 even though the contribution was made in 2024 for 2023, this is because I had until October of 2024 to fix. OK

As she was eligible to contribute in 2025 for the 2024 tax year, can't she avoid the 6% penalty for 2024?

We made the max contribution of $3657.30 on Jan 28 2025 for tax year 2024. Fidelity removed the excess (unfortunately plus earnings) of $1607.19 on Jan 30 2025. i.e. the 2023 6% penalty would still be paid, but the 2024 excess was fixed within 2 days and by the filing deadline of April 2025...

Assuming she has to pay the 6% penalty for 2023 and 2024. As Fidelity also refunded the earnings of $276.30 and if they refuse to fix, how would that be handled?

I know we paid the penalty and fidelity should not have removed that amount. However if they refuse to fix, would that be entered on the 2025 return that I fill out in 2026? Would it count as an early withdrawal subject to income tax and a 10% Penalty?

Thanks for your help

[DanaB27]

Yes, if she was able to make Roth IRA contributions for 2024 then you can apply the excess to 2024 and avoid the 6% penalty for 2024. 

If she made already Roth IRA contributions for 2024 she could still apply the 2023 excess to 2024 and then remove the contribution for 2024 as an excess contribution plus earnings before the due date. Since she made the contribution for 2024 in 2025 she most likely would get a 2025 Form 1099-R with codes 8 and J and this would be reported on the 2025 return. 

Yes, the 2025 Form 1099-R for the 2023 excess will have to be entered on our 2025 return.

I would consider to enter a substitute Form 1099-R with code J if they refuse to correct the form. Then you can add a statement explaining that this was a 2023 excess contribution removed after the due date and Fidelity is refusing to use the correct code. In the follow-up Roth questions after you entered all 1099-Rs you will include the 2023 excess in the net contribution amount. You can withdraw contributions you made to a Roth IRA anytime, tax- and penalty-free.