Roth overcontribution removal after tax deadline

[tlh7]

In Fall of 2024 I removed a 2022 Roth IRA overcontribution of 5400$ via my financial institution. Since this was after the tax deadline, the contribution was removed without computing any gains. Since I wanted to deal with my 2023 taxes before the Oct 2024 extension deadline I manually dealt with this overcontribution and filed a 5329 to pay the 6% excise penalty. Fast forward to this year, I now have a 1099-R that has the 5400 listed under code J and a the no gains computed box checked. I know that I also need to pay the 6% penalty this year as well since the money wasn't withdrawn until late 2024. If I enter this in turbotax as a1099-R it is catagorizing it as an early withdrawal with the associated penalty since it only has code J. I see a place to enter funds withdrawn for corrective reasons before the tax deadline, but not something for after the tax deadline. How do I handle this in turbo tax? Should I enter this as a 1099-R or handle it another way manually? Thanks for any help!

[dmertz]

Since the excess was corrected in 2024 by making an ordinary Roth IRA distribution, your 2024 Form 5329 will show that the excess has been eliminated and that there is no 6% penalty for 2024.  There will only have been 6% penalties for 2022 and 2023.

Despite the contribution in 2022 being an excess contribution, this contribution added to your Roth IRA contribution basis.  Because your contribution basis comes out first, your distribution of the excess is a nontaxable distribution of contribution basis that will be determined on Form 8606 Part III.  Because the distribution is nontaxable, it is also not subject to an early-distribution penalty because early-distribution penalties only apply to taxable amounts.

Simply enter the Form 1099-R, indicate that you cashed it out, then click the Continue button on the page that lists the Forms 1099-R that you have entered and make sure that TurboTax shows your correct Roth IRA contribution basis from years prior to 2024.