excess IRA contribution

[tman19]

I made excess IRA contribution in 2023 but I am going to correct that with my bank in March of 2024, what should I input in the 2023 return and what would I expect for 2024, will I receive 1099R?

[TomK2023]

You can contribute no more than $6,500 ($7,500 if you're 50 or over) to all of your traditional and Roth IRAs.  Any more than that is considered an excess contribution and will be taxed at 6% per year.

To steer clear of the 6% tax on excess contributions, file a withdrawal request. Contact your financial institution and request to withdraw the excess contribution, plus earnings, by the due date of the return (including extensions).

The earnings are included as taxable income for the year the excess contribution was made.

Your IRA contributions are reported on Form 5498, IRA Contributions Information. Your IRA trustee or issuer—not you—is required to file this form with the IRS, usually by May 31. You won't find this form in TurboTax, nor do you file it with your tax return.

To enter your 2023 IRA contributions (money you put into your IRA):

1. Sign in to your TurboTax account.
2. Open or continue to your return.
3. In the search bar, type ira contributions and select the Jump to link in the search results.
4. We'll take you to the Traditional IRA and Roth IRA screen, where you can start the IRA interview.

[tman19]

So I should enter the contribution first and then go to type in the 1099 substitution to input the withdrawal as well as the gain after my financial institution confirmed the withdrawal and gain amount?

[DanaB27]

If you withdrew all of your Roth IRA contribution then you do not need to enter it at all in the IRA contribution under Deductions & Credits. If you entered it already then you can tell TurboTax that you withdrew the excess contribution amount on the penalty screen:

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 Continue until the penalty screen and enter the excess contribution amount withdrawn.

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. 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.

Please see  What happens if I made an excess Roth IRA contribution for additional information.

If you had an excess traditional IRA contribution instead of an excess Roth IRA contributions then please let us know and we will be happy to provide the instructions.

[tman19]

Thank you for the clear direction. Mine is the traditional IRA instead of Roth IRA.

[DanaB27 · Accepted solution]

If you withdrew a 2023 excess traditional IRA contribution plus earnings in 2024 before the due date, then you will get a 2024 Form 1099-R in 2025 with codes P and 1. This Form 1099-R will have to be included on your 2023 tax return and you have two options: 

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 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 2024 Form 1099-R into the 2024 tax return since the withholding is reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholding will be applied to 2024.

To create a Form 1099-R in your 2023 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 2023?"
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 and 1 
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 2024 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 2022" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

Please follow these steps to tell TurboTax that you withdrew the excess contribution amount on the penalty screen:

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

[tman19]

@DanaB27 Just when I think everything is good with your help. I just found out my financial organisation has moved my excess withdrawal into 2024 IRA contribution because I answered a confusing question differently so they said no way to reverse it and I have to do an excess withdrawal for the tax year 2024. They did say that next I should be receiving 2 separate 1099R for 2023 and 2024 excess withdrawal.

So my question is for what your advise early for 2023 1099R substitute form below, do I need to change anything, specifically box 7?

Thanks

[DanaB27]

It seems you will be getting a 2024 Form 1099 R with codes P and 1 for the removal of the excess for 2023 and a 2024 Form 1099-R with codes 8 and 1 for the removal of the excess for 2024. If you like you can verify this with your financial institution.

For Form 1099-R with codes P and 1 you will follow the steps as mentioned above since it belongs on your 2023 return. The 2024 Form 1099-R with codes 8 and 1 will be entered on your 2024 tax return.
 

[tman19]

@DanaB27 Just one followup question, on the screen say "tell us which 1099R you have", do I need to check on the "I need to prepare a substitute 1099R"?

Thanks so much.

[DanaB27]

No, you do not check "I need to prepare a substitute 1099R"?

[tman19]

further to my question, my financial institutional said I would be getting code PJ for my 2023 excess contribution removal, but I see that J is for Roth IRA and mine is traditional IRA. But on the other hand, I check on the "1" on the earlier suggestions here from the code table, it was saying for people before they reached 591/2, which don't applied to me. Any advice here? Thanks.

[DanaB27]

Yes, code PJ would be issues for the return of an excess Roth IRA contribution.

For the return of an excess traditional IRA plus earnings the codes P and 1 would be correct. But you do not have to pay the 10% early withdrawal penalty and would enter the earnings under "Corrective distributions made before the due date of the return" on the "Did you use your IRA to pay for any of these expenses?" screen.

[tman19]

Thanks for clear answer.

Just 2 more follow up questions:

1) I am filing California State return, Turbo Tax should be able to transfer all info on this to my State without for me to do anything, right?

2) Just looking ahead for next year, when I imported the 1099R for the 2023 removal from the consolidated forms 1099, do I just delete that from Turbo Tax or just leave it?

Thanks so much.

[DanaB27 · Accepted solution]

1) Yes, TurboTax will transfer all necessary information from the federal to the California state return.

2) You don't need to import the 2024 Form 1099-R with code P and 1 on your 2024 return but you also don't need to delete it if it gets imported since code P on a 2024 Form 1099-R will tell TurboTax to ignore the income for 2024 and only apply any income tax withheld.

[tman19]

Just noticed another issue with this.

For some reason, I now have an additional tax on schedule 2 (on additional tax on IRAs), the amount represents 10% of my gain on the 1099Rs. Also on the CA state return, I have 2 forms of 3805P and it keep showing Non-simple IRA even though I did the check box on IRA/SEP/Simple on the 1099R, it won't let me changed it so its automatic and with some additional tax as well. I even tried deleting the form on TT but they keep coming back. I think I deleted something under Federal as well. Just want to know if this correct, it is not big amount but want to make sure its correct.  Thanks.