Incorrect Box 7 on 1099R

[Momhelp]

In May 2024, I received a bonus from work that I used to open a Roth IRA thru Vanguard at the full $7000 amount.  Shortly afterwards, I realized that my new income level would not allow me to put in the full $7000.  I called Vanguard and they told me to removed the amount ($2000) I over contributed.  I did that within 30 days of when I opened the Roth.  When I received my 1099-R form they coded the $2000 as a distribution with a code J in box 7.  I called them and they said that they would not fix it but I needed to fill out a form 5329.  In reading what the 5329 form is I don't think that is correct.  (I am not confident in the person I talked to at Vanguard.)

I am not sure how to correctly handle this in turbo tax.  Please advise. 

[ThomasM125]

The code J indicates that the distribution was early and that there is no known exception to it being subject to a penalty for early withdrawal. It should not be subject to that penalty since you corrected the excess contribution by the due date of the tax return. You can remedy that on the screen that says Did you use your IRA to pay for any of these expenses? Choose the option that says incorrect early distributions and enter the taxable amount of your distribution in that box. You will see the option in the screens after you enter your Form 1099-R.

[Momhelp]

Thank you for your help.  Will I need to complete any additional forms such as the 5329 the vanguard person said or form 4852?  Or is just putting the $2000 in the Incorrect early distribution all I need to do?

Thanks again

[Momhelp]

Hello, 

I tried this and it made very little difference to the amount I owed which does not seem correct.  I did not think I would have to pay taxes on the $2000 I removed since I removed it shortly as soon as I realized I was going to over contribute.   Is there something else I am doing incorrectly?

[Momhelp]

Using the "incorrect Early Distribution" did not make much of a difference in my amount of tax owed and it appears that it is still having me pay taxes on the $2000 I took out to stay within my contribution limits based on my new salary.  I noticed if I would have selected "corrective distribution made before due date of return" it would correct the additional taxes.  Are you sure this is not the reason I should select?  

Thank you for your help. 

[dmertz · Accepted solution]

Vanguard messed up and performed an ordinary distribution instead of a return of contribution.  This ordinary distribution made before the due date of your 2024 tax return does not correct the excess contribution.  You should contact Vanguard to correct this and provide you with a corrected Form 1099-R having codes J and 8.