Help with how to report IRA non-deductible contribution if removed before tax deadline

[tanchoco]

My wife made a contribution to her traditional IRA in 2025 that we came to learn was non-deductible because of a retirement account she was covered by at work we weren't aware of.

We removed the contribution from her IRA in early 2026 as a "removed of excess contributions" in Vanguard, moving it to her brokerage account. She wasn't elegible to recharacterize to Roth because our income is above the limit, and we decided to not do a conversion to Roth because she has some $ in her traditional IRA for previous years and we didn't want to deal with the pro-rata tracking.

My question: Now that we are working on our taxes, should we report her contribution? My hunch is yes, because the contribution did happen and I expect her to get a 1099-R next year for the removal. But seeing some conflicting information on some forums were folks say we can say she didn't contribute because the contribution was removed.

Thanks for the help! My brain has been spinning for hours.

[MaryK4 · Accepted solution]

Because you removed the contribution before the tax deadline, the IRS essentially treats it as if it never happened for that tax year.  You will have to report the earnings (if any) on your 2025 return but you will not receive the 1099-R until 2026.  You can enter it now so that you do not have to amend your return next year:

Enter a 1099-R for the one you will receive next year NOW and ignore it when you get it next year.     The 2026 1099-R you will receive next year (that you are entering now) will use:

Box 7 code P 
Box 1 is the total withdrawn (excess PLUS earnings).   
2a is the earnings portions only.   
Choose 2026 for form year
You will be prompted to enter an explanation at the end of the 1099-R interview.
The earnings will show up on Line 4b and the explanation statement will show a ''Return of IRA Contribution Before the Due Date of the Tax Return''.

[tanchoco]

Very helpful! Thanks!

I saw in another thread you had answered to do this, and asked about what to do with the form I would receive next year, but you just answered it :). Ignoring it it is!

On the explanation, that's something I should do this year right? As next year I won't even enter the 1099-R in the first place.

Now hoping I hear from my custodian what the earnings where to know what to mark as earnings before April 15 to get it done without an extension.

[MaryK4]

Correct, if you file it once you have the amount it saves you from having to amend next year.  For this, even if it did add it next year, TurboTax would just tell you that you have to amend 2025!  @tanchoco 

[tanchoco]

Thanks @MaryK4! That completely answers my confusion 🙂 

When I originally read the Form 8606 instructions, what made me doubt my understanding is having to add the returned contribution in line 4a. I found it weird to having to say "I took out $X from my IRA", when technically the IRS is never knowing that X was ever in the IRA (because I'm not reporting the contribution itself).

Thanks again!

[tanchoco]

Side question @MaryK4 :

On the page with this question: "Tell us about your IRAs

Select the kinds of IRAs owned or contributed to for 2025". 

Should I answer yes even if we didn't contribute to them? After reading other forums I'm not sure how to think about "own".

For example, some places say that if I always do a clean Backdoor IRA I should only select the traditional, I'm guessing because that't technically the account that got the contribution. But when I think of "own" that seems separate from if I contributed to them or not.

For example, based on this convo my wife will not have a contribution to her IRAs in 2025. Should I check both Roth and Traditional IRAs because she has them? Or not because she didn't contribute?

[MaryK4]

Yes I can see how this question is confusing.  It really should just be the one you contributed to- so just the traditional IRA.  In your case, because you made the correction you do not have to enter it again.  @tanchoco 

[tanchoco]

Sorry @MaryK4, I might have gotten confused.

If it's only the one we contributed to, it should be just Traditional IRA for me (I did backdoor IRA), and none for my wife (she's the one that is doing to contribution removal)?

On the wording of the question, is there a form to provide feedback to the product/eng team? I imagine I'm not the first one getting confused by that question 🙂

[tanchoco]

Hey @MaryK4! We got the info from our custodian, and it seems like the distribution was lower than the contribution because of market fluctuations. 

For box 2a (earnings), should I enter the negative difference? Or just set it at 0?

Thanks!

[MaryK4]

Since you cannot take advantage of the loss, you can just enter zero.  In fact, you do not have to add it to your return, as it does not need to be reported!  @tanchoco 

[tanchoco]

Super, thanks @MaryK4!

Curious for your help on my question from a couple of messages ago. Repasting it here below. It was about the question about "contributing or owning" IRAs where you mentioned it should be only the one we contributed to:

If it's only the one we contributed to, it should be just Traditional IRA for me (I did backdoor Roth IRA), and none for my wife (she's the one that is doing to contribution removal)?

On the wording of the question, is there a form to provide feedback to the product/eng team? I imagine I'm not the first one getting confused by that question 🙂

Thanks!

[RogerD1]

If you owned both types of IRA accounts, you could select both types.  You'll get asked if you made contributions to both types and if you didn't make any contributions, you just answer no.  You'll get several questions to answer about the IRA accounts (both types).

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