2023 Excess Roth IRA Contribution Made in 2024

[DanaB27]

I agree it might best to file an extension to figure out without time pressure what to do next. Please see How do I file an IRS tax extension?

I agree that most people wouldn't have noticed that there is an issue and would have file the Form 1099-R as shown and the IRS probably would never question it since the Form 1099-Rs show $0 earnings in box 2a.

If you choose not to ignore it you would have to file an 2023 amended return return to pay the 6% penalty. If you are able to earn enough in 2025 you could apply all of the excess as a 2025 contribution. 

Since they didn't take the earnings out the Form 1099-Rs show are regular distribution and should have code 1(if you are under 59 1/2) or 7 (if you are over 59 1/2). Entering a 2024 Form 1099-R with code 1 or 7 would resolve the 2023 excess. Is the custodian willing to change the code from P to 7? 

[Edited 4/12/2025 | 12:35 pm PST]

@susieq1013 

[susieq1013]

Dana,

I"f you choose not to ignore it you would have to file an 2023 amended return return to pay the 6% penalty. If you are able to earn enough in 2025 you could apply all of the excess as a 2025 contribution."-you said.

I didnt realize I could also apply the 2023 excess to 2025. Yes I could earn that.?

But I would have to file an amendment of 2023 correct - to pay the penalty - correct?

"

Since they didn't take the earnings out the Form 1099-Rs show are regular distribution and should have code J (if you are under 59 1/2), T or Q. Entering a 2024 Form 1099-R with code J, T, or Q would resolve the 2023 excess. Is the custodian willing to change the code from P to J?"

None of the 3 codes to me. I am 68 yrs old. And both codes T and Q apply to Roth IRAs. Recall this is a Trad IRA. They will not amend these 1099s at all- they are done. The only codes are X on one and P on the other, and it seems that those are the only ones that apply . Correct?

Can you outline clearly what I do on the return to deal with this situation? Under where it says Trad IRA? There is none anymore only the earnings. Where do I indicate. earnings for which there is no 1099R ( and the 0 contradicts that. ) And exactly how do I apply the 2024 earnings to a 2025 IRA. just open one? I really need super concrete instructions, I prob will get an extension but I;d still like get this done asap as it's extremely stressful. also for 2023 when I amend how do I indicate these earnings ( for which I also won't have a 1099 until next yr) are applied to 2025 IRA? 

Thanks again for your help and being specific and accurate.

[DanaB27]

Yes, you would have to pay the 6% penalty on your 2023 return on the 2023 excess contribution amount. You do not add the earnings on your 2023 return.

I edited my above answer to reflect that this is a Traditional IRA. They really messed up, there is no code X for a box 7 for Form 1099-R. Please see Form 1099-R instructions for details. You could file a substitute Form 1099-R with code 7 to report the distribution and this would resolve the 2023 excess contribution on your 2024 return.

In the IRA contribution interview on your 2024 return:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed
6. On the "Do you have any Excess Traditional IRA Contributions" answer "Yes"
7. On the "Enter Excess Contributions" screen enter the 2023 excess contribution amount
8. Say 'Yes" to "Contribution amount Withdrawn"
9. Enter the amount withdrawn.

Enter the substitute Form 1099-R with code 7, distribution amount in box 1 distribution amount, box 2a blank, and check the "Taxable amount not determined" in 2b. Please see Return of Excess Traditional IRA Contributions for additional information.

No, you do not involve the financial institution to apply an excess contribution as a 2025 contribution. It is done next year on your 2025 return:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Traditional IRA”
4. On the "Do you have any Excess Traditional IRA Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution left (line 24 of your 2024 Form 5329)
6. On the "How Much Excess to 2025?" screen apply the excess as a 2025 contribution.

@susieq1013 

[susieq1013]

To make sure I understand.

The custodian put 8 not X- my mistake- in line 2a. Not 7. But 8 seems correct as it was an excess contribution for 2024, which they then put back in taxable account. They forgot about the earnings.

I want to just finish on the 2024 return not go back and amend 2023. I already said the custodian wont change anything. I have to move past that. 

So are you changing The1099 myself I can resolve the 2023 problem? I sometimes cannot tell whether you are referring to the 2023 or the 2024 1099. 

I completed the 2024 return but didnt file yet. I just left everything as is like they had it-excess distribution 8000 and line 2a 0. I already said it was simply an excess contribution. It asked for comment and I just said we put it in and took it out. are you saying I should change the 1099 online somewhere ( I don't know how to do that) and change to 7 , which is normal distribution? 

One reason we are confused is because there are 2 1099rs. it would be helpful to have 2 separate replies .ONe that is labelled to the 2024 1099R and the other for the 2023 1099 since they  are 2 different scenarios

I want to file this 2024 return and change the 1099R if I have to do that and I can figure out how,.

I want not to have to amend the 2023 return and though I dont understand everything you say about the tax or penalty , whatever the very simplest way is not to have to amend that's what I want to do. it seems like also changing it also to a 7 (normal distribution) and then changing to 'tax undetermined" is hte simplest but at this point we need a step-by-step to have the time to do that.

Many thanks again, susan

and for 2023 

[DanaB27]

For 2023

On your 2023 return you will have to edit that you didn't withdraw the excess contribution by the due date and TurboTax will calculate the 6% penalty. You have to pay the 6% penalty on the contribution since you didn't remove the earnings. You can only avoid the 6% penalty if you withdraw the excess contribution plus earnings (IRS).

On your 2024 return:

You still have time to request the return on the 2024 excess contribution plus earnings until October 15, 2025. Then you can avoid having to pay the 6% penalty on the 2024 excess.

To resolve the 2023 excess on your 2024 return you could enter a substitute 2024 Form 1099-R with code 7 instead of the 2024 Form 1099-R with code P in TurboTax Online:

1. Click on "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R” 
3. Select "Change how I enter my form" on the "Let's import your tax info" screen
4. Select "Type it myself"
5. Fill out Form 1099-R with  distribution amount in box 1, box 2a blank, check the "Taxable amount not determined" in 2b, code 7 in box 7, and IRA/SEP/SIMPLE box checked.
6. Continue through the questions until the "Do any of these situations apply to you?" screen select "I need to file a substitute 1099-R" 
7. Continue through the screens and then add the Form 1099-R with code 8.

Note, if you enter a substitute Form 1099-R you might not be able to e-file. 

Then go to the IRA contribution interview:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed
6. On the "Do you have any Excess Traditional IRA Contributions" answer "Yes"
7. On the "Enter Excess Contributions" screen enter the 2023 excess contribution amount
8. Say 'Yes" to "Contribution amount Withdrawn"
9. Enter the amount withdrawn on ethe "Enter Amount Withdrawn" screen
10. Say "Yes" on the next screen that this was reported on Form 1099-R.

@susieq1013 

[susieq1013]

I paid my taxes but didnt file returns yet.

For 2024 1099R simply ignored mistake and indicated what was on the 1099 ( line 2a zero). 

2023 more complex. I want to avoid an excessive contributions code on a 1099 next yr. 

The custodian won't change codes. But I don't understand how you can change the P to a 7 ( pls recall I'm 68 yo.) It isnt a regular distribution because the 7500 for 2023 was returned to  the taxable acct, as I wasnt eligible to make it, right? So how is it not an excessive contribution? And it was taken out in 2024 and returned in 2024 but the earnings were not so even if I return them in 2025 ( which I did) there is a 6% penalty, right?

For the 2023 excess contribution I DID enter 79.50 ( the earnings) on line 2a. (This contradicts the 1099 but is consistent with the P code and I figure I cant get in trouble for listing more tax than the 1099-R says I owe). Oddly the total tax for the completed return didnt change at all. I dont understand why. Is it because I pay the tax on the earnings in the 2025 tax year? 

Since I didnt want it to be considered an excess contribution, I did apply it to a Trad IRA for this 2025 tax year at your suggestion. I hope that is correct. I'm eligible to do that as I have time to earn it. I couldnt do it for 2024 as I had no earnings. Will applying mean that I've eliminated the excess contribution designation? and a 1099 with that P code? I assume I have no tax to pay on it this year then. 

I understand I do have to amend both fed and state 2023 returns to pay the 6% penalty tax since the custodian left the earnings in the IRA past the 4/15/24 deadline to remove them. Is that correct?

If I complete the amended returns before Tax Day next yr, will I incur any interest on this penalty or additional penalties. 

Thank you.

[DanaB27]

You can file a substitute Form 1099-R to change the code from P to 7 and explain to the IRS that the custodian failed to take out the earnings, issued to wrong Form 1099-R and refuses to make any corrections. 

Entering the Form 1099-R as instructed above with 2a blank will show a return of excess contribution without the earnings. When you enter this and answer the questions in the IRA contribution interview then this distribution won't be taxable as described in Return of Excess Traditional IRA Contributions. You will see the distribution on line 4a but it won't be taxable on line 4b of Form 1040.

Yes, you can choose to apply the 2024 excess as a 2025 contribution on your 2025 return. But you will have to pay the 6% penalty on the 2024 excess on your 2024 return if you choose to do this. Therefore, it might be better to request the return of excess contribution plus earnings by October 15th, 2025.

Yes, you will have to amend the 2023 return to pay the 6% penalty on the excess contribution. 

The 2023 due date has passed so the IRS might charge interest and penalties.

@susieq1013 

[susieq1013]

I have my new custodian on the phone reviewing your comments,

we cant change the 1099 code- we failed to, so letting that go.

as I said I simply filed the 2024 as it was given to me.

We are talking about 2023. I know there is a 6% penalty - I am not concerned about 4.77. no concerns about taxes/penalties. it's minimal

I am concerned only about not having the 79.50 be coded as an excess contribution. I want to erase that if I cna.

I think you misunderstood me. we are not talking about 2024. 

The 1099 I got this yr for 2023. I thought you said I could apply that to my 2025 IRA ( which I am eligible for.

Is this correct ?How do I do that? 

I said in the return, now filed, that I did have 79.50 in line 2a ( earnings ) even though 1099 says 0. we are prepared to remove it from Trad IRA but I thought you said it could be applied to 2025 IRA. My financial person is saying he doesnt know how to do that without generating an excess distribution code on the 1099 . pls respond as soon as you can. We are all confused. I dont know if Fidelity (new custodian) can help.

[DanaB27]

The change of code isn't done with the custodian it's done by filling out a substitute Form 1099-R on your tax return.

Yes, you can apply the excess to 2025. This will be done next year on your 2025 tax return, you do not involve your custodian:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Traditional IRA”
4. On the "Do you have any Excess Traditional IRA Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution left 
6. On the "How Much Excess to 2025?" screen apply the excess as a 2025 contribution.

@susieq1013 

[susieq1013]

Dana,

Can you clarify - I know we talked about this.

The 2024 1099R I got re: the 2023 Trad Ira contribution made in 2024 is not submitted with this return, correct?

It is submitted when I amend the 2023 return ( 7500 was contributed then taken back out but they didnt take out the earnings, wrote zero and coded it P). Is that correct? I already contributed the 79.50 earnings to 2025 IRA ( ineligible for 2024) and do that on that return? I put it on this one but think that's an error.

For this one I have the 2024 contribution of 8000 which was returned and that distribution coded X though they put the taxable as 0 and didnt take out those earnings. I've also contributed those to 2025 IRA.I am unsuccessful at changing the code on the form and gave up on that right now. I;m being prompted to fill out Form  8xxx the one you said was for excess contributions. I just fill out the one for 2024 and do the other on the 2023 amended return, is that correct. I can't recall the form number at this second. will that resolve the excess contribution issue so I dont get an excess 1099 next yr?

[susieq1013]

somehow I missed this one. 

For 2023

"On your 2023 return you will have to edit that you didn't withdraw the excess contribution by the due date and TurboTax will calculate the 6% penalty. You have to pay the 6% penalty on the contribution since you didn't remove the earnings. You can only avoid the 6% penalty if you withdraw the excess contribution plus earnings."

are you saying I have to pay 6% on the 7500 and the earnings?! omigod! that wasnt even my mistake. thats a lot of money. The excess contribution was withdrawn right away; it was by the due date. I put it in on February 2024 and withdrawn soon after, before 4-15-2024. The earnings were withdrawn by me before 4-15-25. I did withdraw both, just one was by the due date and the other after. That is terrible. can you explain further? is that state tax 6% or just fed tax? since this was custodian's fault do I have recourse? a way to file a complaint??

also re 2024 return- the excess earnings are taken out. Is it necessary to contribute to 2025 by due date ( today) or can I do it later in 2025 so that it counts as applying the distribution. I did not request an extension ( sadly) - I know I could have done it then. I prefer not to do it at all and do 1 of the other things you suggested, esp since I have to work a few hrs in retirement to be eligible for it. But crucial question - do I have to make the contribution today? thanks so much.  I should have extended- I am already amending. I think I was so tired not sleeping that I made that mistake. and with Direct pay it's not even necessary to request the extension for uS. 

[DanaB27]

Yes, Pub 590-A states "You won’t have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw any interest or other income earned on the excess contribution." Therefore, you would have to pay 6% penalty on the excess contribution amount not the earnings.

No, you do not make a new contribution/move funds into the IRA to apply an excess contribution from a previous year as a 2025 contribution. This is all done on Form 5329.

It might be best to contact someone at the IRS since this is a complex situation and it wasn't your fault. IRS phone number: 800-829-1040, 7 a.m. to 7 p.m. local time. Please see IRS Help for details.

Please see How do I file an IRS tax extension?

@susieq1013 

[susieq1013]

That;s terrible news about the 6% and I will contact the IRS at some point.

Emergency query: No, you do not make a new contribution/move funds into the IRA to apply an excess contribution from a previous year as a 2025 contribution. This is all done on Form 5329.

My accountants dont understand this. I did not file with Form 5329 and dont have an extension, I am amending my 2025 return. Does the Form have to be filled out by today? that wont happen as I dont know how to do it and the amendment wont go it today. Too late to get an extension though I should have, 

What is deadline for apply to 2025 IRA ?

They also asked how does a Form link the excess amounts to the 2025 IRA without actually deporting the money? is it a 1099 thats issued end of 2025 that designates it as a 2025 contribution?

[susieq1013]

one more: UBS (the faulty custodian) apologized but took no other responsibility  .the person who did this ( not a financial planner) said I didnt ask to move the excess earnings. But I know that you have to move them;i took that for granted. You can't put recharacterize IRA in any way without also including the earnings is what I was taught- and I'm a complete layperson.

And I didnt know about it till end of March 2025 since I didnt get those 2 1099-Rs until then. I was shocked but due date was past for 2023 distribution. ( didnt even get regular 1099-R until Feb. 28, a month late.) I just dont think they knew they were doing at all, as shown by the weird 1099 designation that have messed up my tax returns. 

What is your opinion? I was told iRS cant do anything that I have to call FINRA or SEC or compliance dept? 

[DanaB27]

When you have an excess contribution left in the Roth account at the end of 2024 then next year on your 2025 tax return, if you are able to make Roth IRA contributions, then you can apply them as a 2025 contribution. If you do not have any excess left because you removed it then you don't need to fill out anything on your 2025 tax return. 

Usually financial institutions have forms to fill out for the return of excess contribution plus earnings. Your custodian used the code P on Form 1099-R for return of excess contributions which means "Excess contributions plus earnings", he should have know to remove the earnings along with the excess.

I would start with contacting UBS compliance department. 

@susieq1013