Question on accidental traditional IRA deduction and return

[tbnrs]

In doing the 2024 tax return for a family member, we mistakenly assumed (because of the prior-year recharacterization out of a Roth IRA that showed up on his statement) that he had made excess contributions to his non-deductible traditional IRA.

As a result, he withdrew the excess amount ($165 plus earnings for a total of $192). We quickly discovered our mistake ... that he had NOT made excess contributions ... so he returned the total amount distributed to the same IRA within the 60-day window we have read about.

While these two transactions (withdrawal and return including earnings) occurred in 2025, the manager characterized them as 2024 contributions returned by the end of the tax year.

We assume a 1099-R for 2025 will show the withdrawal, even though the amount was quickly returned. Where on Form 8606 and on Form 1040 for 2025 will we place this information? And how is this transaction to be characterized. Someone said a rollover, though a return does not seem to fit the definition of a rollover. 

And how do we show that there are no tax implications because the amount was returned within the 60-day window? We assume a memo will need to be included with the 2025 return as well.

P.S. He is under 59.5 years of age. 

Thank you for any answers!

[DanaB27]

If you requested the withdrawal of an excess traditional IRA contributions plus earnings then only the earnings will be taxable in the year you made the contribution.  

If you made an excess contribution in 2024 and withdrew the 2024 excess traditional IRA contribution plus earnings in 2025 before the due date, then you will get a 2025 Form 1099-R in 2026 with code P. This Form 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 withholding is reported in the year that the tax was withheld. The 2025 code P will not do anything to change the income in the 2025 tax return income but the withholding 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 (contribution plus earning)
7. Box 2 enter the earnings
8. Box 7 enter P
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 2025 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 2023" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.