Excess Contribution to Roth IRA pre-deadline applied to subsequent year - writing-in 1099R & 5329 help

[zdavies]

I discovered last month that I'd run afoul of the rule re: excess contributions to my Roth IRA. Despite no earned income in 2023, I contributed $4081. Contacted my broker and they applied the contribution plus $395.11 in capital gains to my 2024 Roth IRA contribution for a total 2024 contribution of $5,196.11 - I'm earning income this year so I won't have the same issue. But the broker won't send out a 1099-R or 5329 until May. 

From what I've read, given the timeline and actions taken, I shouldn't owe a penalty. But when I walk through the steps to write-in a 1099R, I still end up with a penalty owed of $288. I assume I'm missing how to write-in a 5329. I'm hoping I don't need to wait to get those forms to file my taxes since I appear to have the information those forms would contain.

I've read posts by @DanaB27 that were very detailed regarding writing-in a 1099-R but didn't deal with this exact issue of applying excess contribution to the subsequent year in a timely fashion so as not to require paying a penalty.  Thank you for any assistance.

[DanaB27 · Accepted solution]

Since you contacted your broker this is considered a withdrawal of excess contributions plus earnings. You will need to make sure that you do not enter any Roth IRA contribution in the IRA contribution section or if you entered it already then you can tell TurboTax that you withdrew the excess contribution 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 Continue until the penalty screen and enter the excess contribution amount withdrawn.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.

Generally, if you want to apply an excess to the next year you do not contact your financial institution, this procedure is done on your tax return. But if you use this procedure you will have to pay the 6% penalty until you are able to apply the excess, in your case you would have had to pay the 6% penalty for 2023. Please see What happens if I made an excess Roth IRA contribution for additional information.