Excessive Roth contribution

[nobodyimportant2425]

I contributed 7000 in non deductible Roth IRA contributions in 2024 before realizing I was beyond the MAGI, I reached out to Schwab so the best option for me is to withdraw the funds (with a Schwab Form) and also fill out the IRS 5329. 

How do I calculate the income on the 2024 contribution (and where do I enter this)? I found a fidelity calculator that makes sense but wasn't sure if this was universal: 

Contributions * ((account value before correction) - (account value before contribution + contributions))/ (account value before contribution + contributions)

[MinhT1 · Accepted solution]

If you withdrew your 2024 excess contribution to your Roth IRA before the due date of the 2024 tax return (April 15, 2025), make sure that you also withdraw the related earnings.

On your 2024 tax return, you do not report the excess contribution as it has been withdrawn. The earnings have to reported and taxed in 2024. There is no need for form 5329 as the excess have been withdrawn and no excise tax is due.

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.

For MAGI over which a Roth contribution is not allowed, please see this IRS document. You asked where to enter this income. The answer is that you do not need to enter on your tax return.

For the calculation of the Modified AGI for Roth IRA purposes, please see Worksheet 2-1 contained in this IRS document.

[nobodyimportant2425]

Thanks Minh,

Since I'm technically taking a distribution from the Roth,should I also fill out IRS form 8606?

[DanaB27]

No, you do not need to fill out Form 8606. Distributions that are a return of contributions are not entered on line 19 of Form 8606. Please see Form 8606 Instructions for details.

[fwei7756]

Hi Minh,

I am currently in the process of withdrawing the excessive Roth contribution amount.  Your response is very helpful.  However, I do have a few questions regarding how to report using the Turbo Tax.

1. In your response, you stated that I need to create a new 2025 1099-R form.  How do I do that in TurboTax?  The 1099-R from in the program seems always to be 2024 1099-R form.   How do I indicate the year on the form is 2025? 

2.   The code PJ in Box 7, "P" in TurboTax is labelled as" Return of Contribution Taxable in 2023".  But it should be "Return of Contribution Taxable in 2024, is not it?

3.  Under the Roth IRA contribution section in the TurboTax Premier, I should still input the contribution amount $7,000, then keep following the steps to the Question "Do you have any Excess Roth Contributions".  I click "NO" button.  Then the next page "Contributions Withdrawn Before the Due Date" the withdrawn Return Box amount, Should I input "$7000", or "$7000 + the earnings"?

 Thank you in advance to your responses.

Frank  W.

[ThomasM125]

You need to enter a substitute 2024 Form 1099-R in TurboTax to report the Roth IRA withdrawal:

1. Find the Retirement Plans and Social Security menu option in the Wages and Income section of TurboTax
2. Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
3. Choose Add (Another) 1099-R
4. Choose I'll type it in myself
5. Choose the source of your 1099-R form
6. Enter your pension income into the Form 1099-R entry screens
7. When you come to the screen that says Do any of these situations apply to you? Check the box that says I need to file a substitute 1099-R and follow the instructions

Since you are going to enter the code "P" in box 7, you will be asked if the form is for 2024 or 2025. When you answer 2025 TurboTax will treat the form as if it was the one you will receive in 2025, so the "P" code will make sense.

You don't need to enter the IRA contribution, since it will be withdrawn by the due date of the return.

[fwei7756]

Thank you for your quick responses.

Frank W.

[TomN25]

I made excess Roth IRA contribution in 2024 so now I have to withdraw that amount plus the earnings from that amount. To calculate the earnings, the IRS uses a formula called Net Income Attributable (NIA) method. It's a straight forward formula. However, what makes my case complicated is I also did a couple of Roth conversions from my traditional IRA a couple months after the time of the excess contribution. Since both my excess contribution and conversion have generated earnings, it's difficult to figure out the earnings from the excess contribution only.

What should I do?

[DanaB27]

Can you check with your financial institution if they can calculate the gains for you? Generally, most custodian will calculate the earning on the excess contribution for you.

If not then you would have to try to allocate the earnings for the time after the conversion.

Please see Worksheet 1-4. Determining the Amount of Net Income Due to an IRA Contribution and Total Amount To B... for additional information.

@TomN25 

[Consett]

Thank you but how do I create a 1099-R for 2025?

[TomN25]

Yes, Thank you very much! Fidelity provides that service. It's just clicks away from completing the process.

[DanaB27]

Please follow these step to create/enter the 2025 Form 1099-R with code P and J for the return of excess contribution plus earnings:

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.

@Consett 

[Linda P]

Hi,

I followed the steps above to do the Excessive roth contribution withdraw. Turbotax created form 5329 with the earning entered on Line 1 and 2.

That's the same amount on Line 4b.  Is form 5329 required to file?

[DanaB27]

Yes, Form 5329 is required because you need to show the exception for the 10% early withdrawal penalty. You should have code 21 for "Corrective distributions of the income on excess contributions distributed before the due date of the tax return (including extensions)" next to line 2.

@Linda P 

[Linda P]

Yes there is 21 on line 2: Enter the appropriate exception number from the instructions.

One more questions: 1040 Line 4a requires an explanation statement for Return of an IRA contribution Before the due date of the tax return.  what should I put there?