In the 2023 tax had excess contribution. Got 1099R. Line#1 $5777.66 Line#2 $1517.66. Excess removed b4 the tax deadline. Is Form 5329 required to report $1518

[mabidi]

$5777.66 IS THE EXCESS CONTRIBUTION REMOVAL FROM THE ROTH IRA ACCOUNT FOR THE YEAR 2024. 03/29/2024 - Contribution - TY 2024 $ 5777.66 INDIVID CONTRIB - CURR YR; IRA/110/C/X/I 03/29/2024 - Distribution - TY 2024 $ 1517.66 REFUND OF EXCESS PRIOR YEAR; IRA/651/C/T 03/29/2024 - Distribution - TY 2024 $ 4260 REFUND OF EXCESS PRIOR YEAR; IRA/651/C/X

[DanaB27]

Yes, you will file Form 5329 to enter the exception to the 10% early withdrawal penalty.   

To confirm you received a 2024 Form 1099-R with code PJ for the return of excess contribution plus earnings made in 2023 for 2023?

If yes, then this form has to be entered on your 2023 return if you didn't file it with the original return since the earnings in box 2a are taxable in 2023. Please see How do I amend my federal tax return for a prior year?

1. Click on the "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R”
3. Answer "Yes" to "Did you get a 1099-R in 2024?"
4. Select "I'll type it in myself"
5. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
6. Click "Continue" after all 1099-R are entered and answer all the questions.
7. 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.

Also make sure you indicate in the IRA contribution interview that you withdrew the excess contribution by the due date:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth IRA contribution
5. Continue until the penalty screen and enter the excess contribution amount withdrawn.

[mabidi]

My question is that I never took out any money from my ROTH IRA. Even the access funds went to 2024 Tax Return Roth IRA contribution. So I never had the access funds in my hands. So it didn't make much sense to pay a penalty on excess funds. The excess funds were removed before the 2023 tax filing. Now in 2024 tax software tells me that I cannot make any ROTH IRA contribution. I still have $5777.66 of excess funds, which is carrying over from 2023. What is the best option here. Should I just take out the entire $5777.66 out from ROTH IRA and move it to traditional IRA and just pay the penalty i.e., 10%.

[DanaB27]

To clarify, you stated you received a 2024 Form 1099-R in your original post. What was the code in box 7? When you applied to excess to 2024, did you tell your financial institution that you want them to apply it as a 2024 contribution? If yes, then it seems they distributed the excess plus earnings and then made a new contribution for 2024. 

If this is correct then you do not need to pay the 6% penalty on your 2023 and 2024 return since you withdrew the excess plus earnings. You made a new Roth IRA contribution for 2024 and are able to request to recharacterize this contribution as a traditional IRA contribution. Please make this request with your financial institution. 

You will enter the recharacterization when you enter the contribution to the Roth IRA on your 2024 return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" if you are thinking about doing a backdoor Roth. Otherwise select "No". (If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

You will get a 2025 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2024 and this belongs on the 2024 return. But a Form 1099-R with code R will change nothing on your return. You can only report it as mentioned above. Therefore, you can ignore the Form 1099-R with code R when you get it in 2026.