How do i report excess removal (done in 2024) for the contribution i made in 2023

[jtwk]

Hi, i recently discovered that the traditional IRA contribution I made for my wife for the tax year 2023 cannot be deducted because exceeds the modified AGI.  As a result, before filing the 2023 income tax, last week, I had Charles Schwab remove the excess contribution along with the earnings.  I'm told that the 1099-R for the excess contribution will not be available until 2025.  My question is since I do not have the 1099-R and because I removed the excess along with earnings (only $8.46) before filing the income tax, I don't have any traditional IRA contribution to report for 2023, correct?  Do you recommend just waiting until next year and amending my 2023 income tax?   Or do you recommend that  I manually creat 1099-R information and file the earnings as part of my 2023 income tax return?  

[fanfare]

return of excess contribution:

before tax filing date including extension: positive earnings allocable to the excess are taxable on the Line 4b for the year of the contribution. negative earnings are ignored; in which case, for purposes of basis, consider the original requested amount as returned.

-- if you want to avoid amending 2023 next year, you would report the $8.46 on your tax return now

@jtwk .

[jtwk]

That makes sense.  Thank you for your help.

[DanaB27]

Yes, you do not have to enter the traditional IRA contribution since you removed it.

If you withdrew a 2023 excess traditional IRA contribution plus earnings in 2024 before the due date, then you will get a 2024 Form 1099-R in 2025 with codes P and 1. This Form 1099-R will have to be included on your 2023 tax return and you have two options: 

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2024 Form 1099-R into the 2024 tax return since the withholding is reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholding will be applied to 2024.

To create a Form 1099-R in your 2023 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2 enter the earnings
8. Box 7 enter P and 1 
9. Check the "IRA/ SEP/ SIMPLE" box
10. Click "Continue"
11. On the "Which year on Form 1099-R" screen say that this is a 2024 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

[jtwk]

Hi, you state that in step 6, for Box 1, I need to enter total distribution which is a contribution (excess contribution which I removed $1749) plus earnings ($8).  However, since I removed the excess contribution, shouldn't I report '$8' for Box 1 and for Box 2 which is a taxable amount?

[DanaB27]

No, you will enter $1,757 (excess contribution plus earnings) in Box 1 and $8 in Box 2a. Only the amount in box 2a will be taxable.

[brittanyrlobo]

Do the same rules apply for a Roth IRA? 

[DanaB27]

You will get a 2024 Form 1099-R in 2025 with codes P and J for the withdrawal of the excess Roth IRA contribution made in 2023 plus earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

@brittanyrlobo 

[Sky_Walker]

I have a similar excess contribution situation and would like clarity before I submit my 2023 tax return (I filed for an extension).  I withdrew $8,000 to fix an excess contribution on 3/26/2024 after realizing I over contributed to my SEP IRA for 2023.  I have seen DanaB27 consistently state that: 

If you withdrew a 2023 excess IRA contribution plus earnings in 2024 before the due date, then you will get a 2024 Form 1099-R in 2025 and it should be included on your 2023 tax return and you have two options: 

•  You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2024 Form 1099-R into the 2024 tax return since the withholding is reported in the year that the tax was withheld. 

Vanguard did withhold 10% on the earnings for Federal and State so...is the best course of action to not report anything now for 2023 and wait for the 1099-R in 2025 to amend the 2023 tax return and correctly report the withholdings in 2024?  I was planning to report the excess earnings on the 2023 tax return by adding a manual 1099 entry and include excess earnings and the tax withholdings, but now I don't know if that is best course of action since it looks like those federal and state withholdings will need to be reported on my 2024 tax return.

[fanfare]

 If you enter $8 in both boxes you will get a better result. line 4a should be blank.

because yout did not take a distribution in 2023.

@jtwk 

[fanfare]

Why can't you do both ?.

You can report the positive earnings on your 2023 return as required.

and the witholding on your 2024 return as documented at that time..

@Sky_Walker 

[Sky_Walker]

Ok.  That was my other option that I was considering. That makes sense.  I had one more clarifying question since Vanguard processed the excess contribution removal in two separate transactions. 

Background:

• I made two contributions to my 2023 SEP IRA with Vanguard
• $28,000 on 10/10/23
• $5,000 on 01/9/24
• I requested an excess contribution withdrawal of $8,000 on 3/24/24 (I understand I need to pay taxes on the earnings made on the $8,000) 
• Vanguard spilt it up the excess withdrawal into two transactions, one for $5,000 and the other for $3,000 (I believe their excess withdrawal logic starts from the latest contribution and works backwards)
• Vanguard also processed a 10% federal and 10% state withholding on the earnings for each withdrawal  

So, do I only file the $45.28 earnings associated to the $3,000 excess removal on the 2023 tax return, and then file the $75.45 earnings associated with the $5,000 excess removal in the 2024 tax return? 

[fanfare]

No. all allocable earnings go on the 2023 tax return.

@Sky_Walker