Help with Roth ira excess contribution and early return fix.

[rswelter]

I am helping my dependant son with his taxes. he made an excess contribution on Dec. 31 2024. April 1 2025 an withdrawl/adjustment was made prior to filing the 2024 return.

he received this year an early distribution 1099-R code J on the amount withdrawn/corection adjustment.

Can this be fixed?

do I call fidelity and explain the excess contribution or is an extra step involved in the desktop deluxe TT? I see no obvious solution going through the step by step.

thanks in adance,

Ron

[rswelter]

clarification with this, the Roth deposit was for 2024. the correction Roth withdrawal was made in 2025 before filing 2024 return. received a early withdrawal 1099-R code J taxable.

can this be fixed?

Thank you everyone.

[rswelter]

Fidelity says we missed the window to recharacterize the distribution.  Can this still be done with deluxe?

any way to add a form 5329? to handle the 2025 distribution?

[ReneV4]

Yes. This can definitely be fixed. Since the withdrawal happened before the tax deadline, the IRS considers this a timely return of excess contributions.

You have already contacted Fidelity and they cannot correct the form, so you will work with the Form 1099-R as presented. 

Your Form 1099-R only shows a code J in Box 7, so you will need to add the additional code of P for Box 7 (J & P both), to indicate that this is a prior year correction by following these steps: 

1. Go to Income on the left panel within your TurboTax account
2. Click on the Review to the right of IRA, 401(k), Pension Plan Withdrawals (1099-R)
3. Click on the pencil to the right of your 1099-R to review/edit it
4. Continue through the questions until you reach, "Enter your 1099-R details from _"
5. Enter the information from the original Form 1099-R that you received
6. For Box 1, enter the original contribution + earnings amount
7. For Box 2a, enter only the earnings amount
8. Ensure the details from your Form 1099-R are correct, including Distribution Codes J & P being used in Box 7, then Continue

Important: When you made the withdrawl/adjustment on April 1, 2025, did you report the earnings on your 2024 return? If you did, then you will not need to amend your 2024 return. However, if you did not, then you will need to amend to include the earnings.

To check your 2024 Form 1040, go to Line 4a and 4b. If the earnings are not reported on Line 4b, then you must amend.

If no amendment of your 2024 return is required, you're all set.

To verify that your request for waiver was successful, go into Forms Mode by clicking the icon at the top right and open Form 5329 to verify that Line 2 shows your earnings. If you see that, then the penalty was successfully waived.

[rswelter]

Thanks so much for the help ReneV4,

to your questions,

No earnings were reported in 2024 from the Roth April 1 2025 withdrawal.  The deposit was made on 12/3124 and the transaction made to the corrected amount (4/1/25) was actually at a loss (no earnings) .

I want to make sure that this is the best option.  Am still okay with adding the code to box 7.

When would I be able to do this?

"To verify that your request for waiver was successful, go into Forms Mode by clicking the icon at the top right and open Form 5329 to verify that Line 2 shows your earnings. If you see that, then the penalty was successfully waived."

I did find another method before your response.  Though yours I think is simpler. that is submitting a Substitute 1099-R with a short statement explanation. this allows a form 4852 filing. resulting in nontaxable withdrawal.  this also complicates the Pa. state return. 

I would rather take the most common path of correction with less flags.  please review the above and comment as needed.  

thank you very much. Ron

[rswelter]

I did try your method, it was difficult working with the form 5329.  I had to override some of the fields. the form was incorrectly showing his contribution limit at 7000 instead of his 2024 earnings of 1680.00

I am still unclear about reporting the "earnings" issue for 2024. the funds were used to buy and sell a stock within the roth and was sadly done at a loss to withdrawal to the roth limit.

[rswelter]

I am still unclear about reporting the "earnings" issue for 2024. the funds were used to buy and sell a stock within the Roth and was sadly done at a loss to withdrawal to the Roth limit (employed earnings).

as stated the corrected withdrawal was a stock sale at a loss. are you referring to any earnings in other Roth holdings? the Roth did have a small money market amount earning about 1.80 a day from the initial deposit in 2023. So I am unclear and still need help, please.

[rswelter]

smart check said no overrides for efilling. once removed I have the 6% penalty.

something is not right.

[CatinaT1 · Accepted solution]

Let's start over on this, and make sure we are on the same page. 

• December 2024 excess contribution made.
• April 2025, excess contribution withdrawn at a loss.
• Received a 2025 1099R with only code J in box 7.

Code J stands for an Early Distribution from a Roth IRA. It tells the IRS that he took money out of his Roth IRA in 2025 before he reached age 59½. Ideally, the brokerage should have put Codes P and J in Box 7 to signify it was a return of a prior-year excess contribution.

If they only put Code J, they processed it as a standard early withdrawal instead of a formal "Return of Excess."

Because he withdrew the money at a loss, his earnings were $0. Even with just a Code J, he will not owe any taxes on this. He will simply use his Roth IRA "basis" (the record of his original contributions) to shield the withdrawal from taxes.

To ensure the software doesn't penalize him, he needs to enter the form and navigate the follow-up screens carefully to trigger Form 8606 (Part III).

1. Navigate to the Wages & Income section and enter the 1099-R exactly as it is printed, including Code J in Box 7.
2. After clicking Continue, the software will ask if he used the money for a first-time home purchase or qualified medical expenses. He can answer No.
3. The most critical screen will ask for his Net Contributions Prior to 2025 (this is his Roth basis).
4. He must enter the total dollar amount of all the contributions he has ever made to his Roth IRA in previous years (including the contribution from December 2024 that was withdrawn in 2025).
5. TurboTax will compare his Box 1 withdrawal amount to his total lifetime contributions. Since the withdrawal is covered by his contributions, the penalty amount drops to $0.

[rswelter]

your the best, thanks so much! 

[rswelter]

had to rerun through the steps and got the 8606 to generate. thanks again.