excess contribution removal of a ROTH IRA

[stantonporsche]

I accidentally opened up a ROTH IRA for tax year 2024.  Being a stupid college student I thought you could just open up a ROTH ever year with your savings but later told that it had to be earned income.   Luckily I found this out earlier this year in January and did an excess contribution removal.   So i had to sell off the 7000 i placed for tax year 2024 and 1700 dollars in profit made from that money.   I am using turbo tax deluxe and confused when they asked me if i opened up a ROTH IRA for 2024.  I assume since i did a excess contribution removal, i say NO to if i opened up  a ROTH.     The question is when will I get tax for that profit that i made from selling off the stock and sending that back to my investment account $1700 profit ( 8700 total withdrawal- original 7000.)

will i get taxed for tax year 2024 or the following tax year in 2025.   I was also told that since I am still a student and make no income, I should fall under category where I do not have to pay taxes since with  interest made from bank accounts and selling off stock, I only sums up to no more than 3 to 4 thousand. 

[DanaB27]

Yes, since you removed all of your contributions plus earnings you do not need to enter the Roth IRA contributions. 

The earnings will be taxable in the year you made the contribution. If you made an excess contribution in 2024 and withdrew the 2024 excess Roth IRA contribution plus earnings in 2025 before the due date, then you will get a 2025 Form 1099-R in 2026 with codes P and J. 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:

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 2024?"
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 "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2025 Form 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 2023" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.

Please see Do I need to file a federal return this year? and Do I need to file my own taxes if I'm a dependent? for additional information.

[stantonporsche]

I asked TurboTax specialist and the people at Fidelity where  I opened  the roth

they told me that since I did the reversal in year 2025 , the 1099 R will not be given to me until early 2026

I was told that I do not need to amend my 2024 taxes but i just need to include this in my 2025 taxes

[stantonporsche]

turbo tax people said that if I make up a 1099 R, then IRS will have no paper work to look at and this will trigger an audit.    this seems to make sense!!