Excess IRA Roth contribution - withdrew excess but now Turbo Tax and forms are saying I still have excess

[Taxdog_2025]

Hello,

We are married filing jointly and each of us contributed to a Roth IRA for Tax Year 2024 in excess.  We are permitted to contribute to a Roth, but are limited to below the maximum based on our income.  We have requested extensions for Tax Year 2024, and so are doing a timely withdrawal to avoid the penalties.  We understand any growth on the contributions are subject to income tax for 2024.

We initiated returns of excess contributions (plus the earnings from the contributions).  When we input those values into Turbo tax now, it says we still have excess contributions.  I imagine if we go to withdraw this new excess from our IRAs, then we will have growth on top of that, which will in turn add to our taxable income.

What is the solution for this? 

[DanaB27]

Yes, if your are in the phaseout range the earnings on the returned excess contribution can create a new excess contribution. In this situation it might be best to withdraw a little extra when you request the return of excess contribution plus earnings. 

Please see What if I made an excess Roth IRA contribution for other options.

[Taxdog_2025]

Thanks for the reply.  If I go the route of withdrawing more excess, how do I determine how much extra to withdraw to try to avoid this circular outcome?  The money will have earnings on both my and my spouse's excess contributions, so just trying to understand how this does not continue to increase our taxable income and result in further excess contributions. 

Also, if I choose to go the route of recharacterizing this last portion that is showing as excess to a traditional IRA, what do I need to reflect on the 2024 Tax Return, and do I need to do anything for 2025? 

Thanks for the help.

[DanaB27]

How much extra you need to remove will depend on your earnings. You can calculate the earnings for you and you spouse with this worksheet and then enter it in TurboTax to check if you still get a new excess contribution. To be safe remove a few extra dollars, just in case it takes time to process the return of excess contribution.

 You will enter the recharacterization when you enter the contribution to the Roth IRA for 2024 on your 2024 return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" if you are thinking about doing a backdoor Roth. Otherwise select "No". (If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

You will get a 2025 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2024 and this belongs on the 2024 return. But a Form 1099-R with code R will change nothing on your return. You can only report it as mentioned above. Therefore, you can ignore the Form 1099-R with code R when you get it in 2026.

[fanfare]

If you did not file yet and you did not request an extension,

it is too late to remove that additional excess via "excess plus earnings" .

The deadline was  April 15, 2025.

You must file 2024 Form 5329 and pay the 6% penalty and have custodian remove the new excess by distribution of exactly that amount.

any earnings on the new excess remain in the Roth IRA.

@Taxdog_2025 

[fanfare]

Reply back if you did timely file by Tax Day or you did request an extension of time to file.

@Taxdog_2025 

[fanfare]

oops, Wow, now I see by your original post that you did request an extension.

The deadline is Oct 15, 2025.

You must add a sufficient cushion to prevent a second new excess.

Using the other procedure (Form 5329) may be simpler and leaves the most money in your Roth IRA.

@Taxdog_2025