How to match proceeds with Roth IRA excess contribution ?

[jackkgan]

Request your advice on how to go about if the proceeds of sale from Return of Excess contribution to Roth IRA (withdrawn due to income limit) would be less than the total contributions or should Fidelity/me transfer money from my other accounts to make up for the difference? Will that change anything with respect to filling my taxes?

Context: I had made $7000 Roth IRA contributions in Jan 2025 without realizing that there is an  income limit of $150,000. (for single) for Roth IRA. I submitted the Return of Excess contribution form to Fidelity and received the following confirmation email. As the total amount returned would be only $6793.03 and not $7000, will that change anything or should I be selling more to compensate for this difference? Thank you!

• Excess contribution amount was $7000
• Total applicable earnings or loss for the computation period was $-206.97
• The total amount to be returned is $6793.03

[DanaB27]

No, you do not need to sell more, you had a loss with the return of your excess contribution.

If you made an excess contribution in 2024 and withdrew the 2024 excess Roth IRA contribution plus earnings in 2025 before the due date, then you will get a 2025 Form 1099-R in 2026 with codes P and J. This 1099-R will have to be included on your 2024 tax return and you have two options:  

• You can wait until you receive the 2025 Form 1099-R in 2026 and amend your 2024 return or
• You can report it now in your 2024 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 2025 Form 1099-R into the 2025 tax return since the withholdings are reported in the year that the tax was withheld. The 2025 code P will not do anything to your income to the 2025 tax return income but the withholdings will be applied to 2025.

To create a Form 1099-R in your 2024 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 2024?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution $6,793.03  (contribution minus loss)
7. Box 2a enter the earnings $0
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 2025 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2023" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.

Also, make sure you indicate that you withdrew the excess contribution in the IRA interview:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until the penalty screen and enter the excess contribution amount withdrawn ($7,000).