Withdrawal of ineligible contribution to Roth IRA due to income limit

[jackkgan]

Hi there, One more follow-up question:

Context: I had made $7000 Roth IRA contributions for 2024 and 2025 without realizing that there is a income limit of $150,000. (for single)

As per earlier suggestion, I called Fidelity and submitted the form to return my $7000 contribution made to Roth IRA in Jan 2024 + $801.85 earnings = $7801.85 . (I will do the same after it gets processed to submit request for return of my contributions of $7000 made in Jan 2025 for my 2025 Roth IRA with loss of $86 in 2025.). I hope I am on the right track now.

Questions:

1)  I understand that I may have to pay taxes for the $801.85 earnings, but will I also have to pay any penalties? (I am 27 years old) . Would it be: IRS distribution - taxable = $802, IRS distributions -nontaxable = $7000?

2)  Should I click Yes or No for below ? Because I did not exceed $7000, it's just that I did not realize that I was not eligible to contribute.

3) Is it ok to click No below as I did not withdraw before 2024 and only for the contribution made in 2024?

4) Please confirm if it is ok that I changed below to $0 as I am withdrawing this contribution

5) I clicked No for below as I think it is not a repayment.

6) Finally, please confirm what should I look for to ensure that I have entered everything properly.

Thanks a lot for your guidance!

[MinhT1 · Accepted solution]

1. $802 earnings are taxable, $7,000 not taxable as they are withdrawals of Roth IRA contributions.

2.The answer should be No as you withdrew the excess contribution.

3. The answer is No

4. You should 0 as the excess contribution has been withdrawn.

5. The answer is No.

6. On your 2024 tax return, answer that the 1099-R with code PJ is for 2025.

[Edited 03/10/25 | 12:00 PM PST]

@jackkgan  I have edited point 6 above.

[jackkgan]

Thanks so much again MinhT1

I just noticed the following sentence in your post. By any chance did you mean that I should amend my previous year 2023 tax return?

MinhT1 wrote: "On your 2023 tax return, answer that the 1099-R with code PJ is for 2024."

I entered 1099-R myself with the following entries for 2024, Please confirm if below are correct and if this what you meant by 2023? (I understand that though the drop down says 2023 , it would be for 2024 from a previous post)

[fanfare]

["Include the earnings in income for the year in which you made the contributions, not the year in
which you withdraw them."]

You have to amend 2023 tax return.

For 2024 contribution that lost money, negative earnings are ignored.

[jackkgan]

Thank you. I made the excess contributions to Roth IRA in 2024 and not in 2023, because, I had contributed $7000k in Jan 2024 to Roth IRA when my income my low and when I switched jobs to a higher paid job in March 2024, my income went above $150k. Hence the problem. 

Meaning, my income in 2023 was < $150k but was > $150 k in 2024 .

Please help me understand if you think I would still need to amend my 2023 return.

Also, the earnings from the 2024 contributions was $802, it was not a loss. I understand that I have pay tax for just the earnings as I now placed the order withdrew them as well. Thank you

[fanfare]

do you have a 2024 1099-R with code PJ ?

if yes, you have to amend your 2023 tax return

The quote is straight from the IRS Pub. I admit it is confusing. 

But the Code PJ pulldown you posted says it right there.

I misspoke about your later contribution that you said had a loss.the taxable amount on the 1099-R will be Zero.

In oher words, you can file 2024 tax return now without being in the amend situation that you are in now with your 2023 tax return.

@jackkgan 

[jackkgan]

fanfare, thanks for your response.

I don't have 1099-R in 2024 for contributions 2023 as I did not go over limit in 2023.

As far as I understand, my issue is only with my contribution to Roth IRA in 2024 as my income went up > $150 in March 2024. So I placed the request to withdraw the $7000+ earnings in 2024 am trying to enter the values for 1099-R myself for 2024 as I won't receive that until later. So I guess I may not have to amend 2023. Please confirm if you still think I need to amend 2023.

As far as the loss I had mentioned, it is for the 2025 for which I had made a similar mistake of contribution in Jan 2025. I will withdraw that next, so I will have to take care of that in 2026.

[fanfare]

MinhT1  corrected the point 6 above that caused the confusion for you. I did not read your original post correctly..

@jackkgan