topic Excess contributions Webull and more in After you file

Excess contributions Webull and more

keith729 — Fri, 14 Feb 2025 17:16:41 GMT

I contributed $7,000 to a Roth IRA in 2024, but it turns out it was excess because I was over the income limit. My Roth is in Webull. I closed out all my positions and transferred the money total of $9,055.47 ($7k in 2024 contributions + $804 in 2025 contributions + any earnings on these contributions) to my bank account. There was approximately $2,467.67 in the account before I started making 2024 contributions which I eventually sold at losses for net negative as you can tell by the total I withdrew. Webull taxed me 10% for federal tax total of $905.55. I currently have $134.19 in Webull Roth ($134 of it is 2025 contributions and the 0.19 is interest or dividends from prior positions which are now closed). I transferred this $134.19 to my bank (currently processing) and Webull again taxed 10% on this as well. I had no idea I would be over the limit until after the fact and do not want the 6% penalty. I have already setup a Traditional IRA and Roth IRA with Fidelity to backdoor so this doesnt take me by surprise again. I have already transferred from my bank to Fidelity Traditional IRA the $7,000 for 2024 contributions and about $938 for 2025 contributions. My issues are that I have already filed my taxes and return is processed. Additionally, I don't believe I should have been taxed as much because majority was contributions. What are the steps to get all of this corrected and settled? I am under 59 1/2.

Re: Excess contributions Webull and more

DanaB27 — Sun, 16 Feb 2025 15:30:43 GMT

Since you filed your return please wait until it is processed before amending your return.

To clarify, did you request the withdrawal of excess contributions plus earnings with your financial institution or just make a regular withdrawal? It is important to make the this request so the custodian puts the correct code on your Form 1099-R.

If you filled out the request correctly, you will get a 2025 Form 1099-R in 2026 with codes P and J when you made an excess contribution in 2024 and withdrew the 2024 excess Roth IRA contribution plus earnings in 2025 before the due date. 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:

Login to your TurboTax Account
Click on the "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Answer "Yes" to "Did you get a 1099-R in 2024?"
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2a enter the earnings
Box 7 enter J and P
Click "Continue"
On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
On the "Which year on Form 1099-R" screen say that this is a 2025 Form 1099-R.
Click "Continue" after all 1099-R are entered and answer all the questions.
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" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.

To remove the 6% penalty:

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

The withdrawal of your 2025 excess contributions plus earnings will be entered on your 2025 return. You should receive a 2025 Form 1099-R with codes 8 and J if you requested this correctly with your bank.

Please see How do I enter a backdoor Roth IRA conversion? for instructions.

Re: Excess contributions Webull and more

keith729 — Sun, 16 Feb 2025 16:48:51 GMT

Thanks for your response.

For clarification, I just made a regular withdrawal from Webull. I did not fill out any forms because I wasn't sure I was supposed to. I reached out to Webull about how to correct this since it's already been done, but if you know of any way to do so please advise. I have not heard back from them yet and am not sure if there is anyway to correct it.

Re: Excess contributions Webull and more

fanfare — Sun, 16 Feb 2025 17:40:44 GMT

It's better to reach out to Webull before you attempt corrective action rather than after.

Having closed out the Roth entirely, the net tax consequence may be about the same as doing it correctly.

Depending on your age, you can have an early distribution penalty that otherwise would have been avoided.

@keith729