Help with Overcontribution for 2023 made in 2024

[helpplease44]

In 2024, I went to my bank that I have my RothIRA set up and contributed the full $6,500 for the past year, 2023. When doing my taxes on turbotax in April, it popped up that I had overcontributed by $2537. I informed my bank of this and asked them to remove both the overcontribution amount and any earnings (net income attributable). I had a lot of back and forth from the bank and it took them 6 months to do this for me. Below are the dates for everything.

2/9/24- $6,500 contribution last year for roth ira 2023 ("regular contribution last year")

3/31/24 and 6/30/24- Interest paid on the overcontribution

8/29/24- "withdrawal of excess contribution last year" ($2537 removed)

8/29/24-  "excess earnings withdrawal" ($67.78 removed)

I filed for extension for my 2023 taxes then after this was all done, submitted my taxes. 

Turbotax had stated during the filing stage (not on a forum) the following: "If you made the contribution to your Roth IRA in 2024 (between January 1, 2024 and the 2023 filing deadline without extensions) but you designated it as a 2023 contribution and you withdrew it in 2024, the Form 1099-R you get will be for 2024. Include the Form 1099-R on your 2024 return. Your Form 1099-R will have code 8 and a code J in box 7."

This year, I received the 2024 1099-R form with the following listed:

-Distribution codes of J and P (instead of J and 😎

-Box 1- gross distribution=$2604.78

-Box 2a- taxable amount=$0.00

-"Taxable amount not determined"=checked

I was informed to add this form on my amended 2023 taxes. I was advised to add the $67.78 to the 1099-R form even though it isn't listed. In adding this on the 2023 taxes, this would increase my income and then I would be in the same situation that started all of this with another overcontribution to my 2023 rothira. I have asked for an extension for my 2024 taxes and have not yet filed the amended 2023 taxes.

My questions are:

1) Where do I report the $67.78 to be taxed? Shouldn't it be on the 2024 tax form since that is the only year it was made? 

2) Do I report the $67.78 as ordinary income in 2024 taxes? I read this on another tax forum.

3) If this $67.78 does need to be reported on 2023 taxes, then how do I go about correcting my rothira and reporting that on both my 2023 and 2024 taxes. And what forms would be needed?

Sorry for all the questions and I know I've asked them on other forums but since this situation has become more complex, I figured it would be easier to have all the information on one question.

Thank you! 

[DanaB27]

You should check with your financial institution why they have $0 as earnings listed in box 2a but you have documents that state you had $67.78 earnings. 

1) If you are indeed have earnings of $67.78 and they correct the Form 1099-R showing $67.78 in box 2a with codes P and J then you will have to report this on your 2023 tax return. 

Generally contribution made for 2023 in 2024 are deemed to have been made in 2023. Earnings on excess contribution are reported in the year they've been made. Therefore, the earnings should be reported on your 2023 return. Of course some custodians read it as the contribution was made in 2024 and therefore it would be taxable in 2024. But the correct way is to report it in 2023. Since your financial institution used P and J  you should report it on your 2023 return if you indeed have earnings.

2) No.

3) If you indeed have a new excess contribution because of the earnings then you will have to pay the 6% penalty on your 2023 return. But please check with your custodian if you have $0 earnings as they reported on Form 1009-R or the $67.78. 

If you can apply the 2023 excess as a 2024 contribution then you do not need to pay the 6% penalty on your 2024 return. On your 2024 return:

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
6. On the "How Much Excess to 2024?" screen enter how much you want to apply to 2024

If you cannot apply the excess as a 2024 contribution then you need to pay the 6% penalty on your 2024 return. You need to take a regular distribution of the excess amount (without earnings) since it is after the due date of the 2023 return. This distribution will be reported on your 2025 return and then resolve the excess in 2025.

[helpplease44]

Thank you for all your help! Your explanation is very easy for me to understand. I have some more questions now.

Questions:

1) I will start by contacting my financial institution to try and correct the 2024 1099-R form. If they do not correct the earnings 2a box though, do I submit it as a substitute for my amended 2023 taxes with the $67.78 in the 2a box still so I can pay the taxes on it?

2) I am not able to contribute to 2024 rothIRA. After adding the $67.78 to my mAGI, I overcontributed by $28.41 in 2023. Should I round up to $30 to take that amount out of my roth IRA as an excess contribution for 2023? Or just ask to remove $29 by rounding up?  

3) I now know I will owe 6% penalty on the $29 or 30 I remove for 2023. Since I extended my taxes to the Oct 15 deadline, if the $29 is removed by then, will I also owe 6% penalty for 2024? Will any of this effect my 2025 taxes? And should I add a form 1099-R for 2024 or wait and amend my 2024 taxes if I receive one for this new info?

4) Do I owe 10% early withdrawal fee on any of this?

5) As you stated above, I do not need to take out earnings made on the $29 since I am taking this overcontribution out after the 2023 timeframe. Is that correct?

Thank you again! You are helping me so much!

[DanaB27]

1. Yes, if the custodian refuses to correct the Form 1099-R then you can submit a substitute Form 1099-R with the earnings in box 2a.

2. Removing $29 is fine. Remove it as a regular distribution since it is after the 2023 due date.

3. You will also have to pay the 6% penalty on your 2024 return since the 2023 excess wasn't removed by December 31, 2024. Since you remove the 2023 excess in 2025 as a regular distribution you will get a 2025 Form 1099-R with code J (if you are under 59 1/2) or T or Q (if you are over 59 1/2). When you enter this Form 1099-R next year on your 2025 return you will resolve the excess contribution.

4. No, you should not owe a 10% early withdrawal penalty since you are removing your contributions.

5. This is correct.