Excess Roth IRA 2024 & 2025

[achung0315]

Hello All, 

I didn't realize my income would pass the Roth IRA income limit, so need to withdraw excess 2024 roth ira. Problem is, I also contributed beginning year 2025 for 2025 Roth IRA - both in the amount of $7,000 each - Do I have to withdraw both 2 years contribution in order to complete excess return and see if I qualify for Roth for year 2025 in January 2026 to redeposit? Thank you! 

[MinhT1]

You need to withdraw the 2024 excess contributions before April 15, 2025. For the 2025 excess, you have until April 15, 2026 to withdraw, and if your 2025 income falls below the threshold, you may not need to withdraw. When you withdraw the excess, make sure to also withdraw the related earnings, if applicable.

On your 2024 tax return, you do not report the excess contribution as it has been withdrawn. The related earnings have to reported and taxed in 2024,

For this, you would create a 2025 form 1099-R with the total distribution (excess plus earnings) in box 1, the earnings in box 2a and code PJ in box 7. You then enter this 1099-R on your tax return, and the earnings will be taxed. When entering this form 1099-R, make sure to indicate that the year on the form is 2025, as this is a replica of the form you will receive for year 2025 in 2026.

If there is a loss, that loss is not deductible.

When you receive the 2025 form 1099-R with code PJ in box 7 (in 2026) for this withdrawal, there is no further action needed.

[achung0315]

Thank you for the detailed explanation. Not sure if this applies but I am not over 59 1/2, but there wouldn't be 10% penalty? Also I read there is a form 5329 I have to file, not 1099-R? If my wife is in a same situation, do we file separate forms? Thank you. 

[DanaB27]

No, you won't have the 10% penalty since the is an exception for "Corrective distributions made before the due date of the return". TurboTax will fill out Form 5329 part I, but there will be no penalty. Please continue after you entered all Form 1099-Rs to get to the exception screen.

Yes, you will need to enter on Form 1099-R for yourself and one for your wife.

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.

As MinhT1 mentioned you  can ignore the 2025 Form 1099-R with codes PJ when it comes in 2026 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.

Please make sure you indicate in the IRA contribution interview that you withdrew the excess contribution:

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.

[achung0315]

Thank you for the explanation regarding form 5329. I think I get the jist of the situation. 

Now in order to calculate net gains, do I have use this form below? 

​Net income= excess contribution x [(ACB−AOB)/AOB]​

where: AOB=Adjusted Opening Balance, ACB=Adjusted Closing Balance​

I have additional contribution for year 2025, so the figure gets really tricky since 2025 contribution is a loss and 2024 contribution is a gain and it technically reduces my gain. I know the exact quantities of the mutual fund shares I need to liquidate to determine the gain for 2024 which includes capital gain distribution I got last December as well. 

Thank you.

[DanaB27]

Yes, that is the correct formular to calculate the net gains. You can also use the Worksheet 1-4. Determining the Amount of Net Income Due to an IRA Contribution and Total Amount To B... from Pub 590-A.

Generally, your financial institution will calculate the gain for you when you file a request to withdrawn an excess contribution plus earnings. You could check with them.

[achung0315]

Unfortunately JPM Chase does not calculate it for you so I have to do the gains calculation myself. I have contributed $7,000 for year 2024 and $7,000 for year 2025, so would I need to add $14,000 when calculating the gains from Pub 590-A Worksheet Line 3 although I am only taking out $7,000 from 2024 (Line 1 from the worksheet)? Technically year 2024 has gains but due to bad market conditions 2025 contribution I made one month ago has a loss so not sure if I can apply the partial loss to 2024 (Calculation causes 2025 to be a loss so it actually offsets my gains from 2024). Thank you.

[DanaB27]

To clarify, did you make to contribution for 2024 and for 2025 at the same time? Then yes, you would add both for line 3 on the worksheet.

If not you might have to make two calculations. One for the time from the 2024 contribution until you made the contribution for 2025 and then for the time after the 2025 contribution until removal (these earning would be allocated between the 2024 and 2025 contribution).

[achung0315]

I made 2024 Contribution on 01/03/2024 and 2025 contribution on 01/02/2025 - both at the beginning of the year for the respective years.. Which is why it's getting confusing 

[Pumpkin1688]

Hello,

I have the same issue as the original poster and would like to tag on this as well. First of all thank you very much for your detailed explanation.

My question is, if i withdrew both the 2024 and 2025 contributions (two separate withdrawls $7000 + earnings), do I report both of them on the same 1099-R form or do I need to fill out two separate forms?

Thanks!

[achung0315]

Calculating with the IRS calculation threw me off so I ended up using the lot cost to figure out exact gain - didn't need to take out 2025 yet as I will try to control my gains to avoid the income for the year end - hope this helps 

[KeshaH]

You would only need to report the 2024 withdrawal on your 2024 return. The 2025 withdrawal would be reported on your 2025 return.

@Pumpkin1688 

[fallguy]

I would like to clarify something mentioned about the 2024 excess contribution and how to file this in Turbo Tax. I have an excess 2024 ROTH IRA contribution that I plan on returning before April 15, 2025 so I do not have to report this contribution for 2024. I understand that I need to report the earnings received on the 2024 contribution however I am not clear why I would not report this on my 2024 tax return since these were 2024 excess contributions? I am also not clear on when I use Turbo Tax to file a 1099-R if there is a place to state this is for 2025 vice 2024 and will Turbo Tax file this correctly in my 2024 return?

Thanks 

[ThomasM125]

You should report the earnings on your 2024 tax return. When you enter the Form 1099-R with the proper codes J and P in box 7, you will be asked which year the form is for, and you should answer 2025. TurboTax will file it correctly on your 2024 tax return.

[fallguy]

When you say in Box 7 select J and P I see a problem with P. When selecting P it states, "Return on contributions taxable in 2023". I am filing my 2024 taxes and my excess ROTH IRA contribution was made in 2024.