Excess Roth Contribution circular

[Retired Bill]

TT provided me with the amount of my excess Roth contribution for 2025.  I can not changed that amount now.

I calculated the Income on the excess.

I told the Bank the gross amount to withdraw ASAP plus the additional income.

I put there additional income into TT and TT recalculates a new balance to withdraw.

It is a circular calculation.  If I with draw the additional higher amount plus the income and place it into tT it will recalculate another amount.

How do we handle this is?  I already made the first withdrawal plus income.

[ThomasM125]

The distribution amount listed on your Form 1099-R should include the income and is reported in box 1 on your Form 1099-R entry. I believe you may have reported the principal distribution in box 1 and the income portion in box 2. For instance, if you over contributed $1,000 and withdrew that plus $10 in income, the entry in box 1 would be $1,010, with $10  going in box 2. So, if your income goes up $10, you withdrew the extra $10 so you should not be over your contribution limit.

[Retired Bill]

The 1099R will not come until 2027.

The bank will put the Gross amount in Box 1 and the taxable in box 2.

I can create the same in Turbo tax but if I insert the amount (in your example $1000) in easy step it will generate another amount to remove.

In my case the original excess was $7,250 and the other income was $350 so the combined amount to go into box 1 is $7,600.

[Retired Bill]

Just to clarify, if I prepared the 1099 R like what will come in 2027 I would put 7,600 in box 1 and $350 in box 2.  

When I go to easy step they ask how much of the excess I withdraw timely.  I answer $7,250.  So they come back and ask for another $180 withdrawal.  The calculation is circular.

If I answer the question with $7,600 (excess + other income) it will work but I do not think that is correct to do it that way.

[ThomasM125]

Yes, $7,600 would be the entry in box 1, which would be the total amount you receive. $350 would go in box 2 as the portion that is taxable income. You would answer $7,250 as the amount of the excess you withdrew. I'm not sure why you are getting the message regarding an additional withdrawal.

I suggest you look on your Schedule 2 to see if there is a penalty showing up for excess  IRA contribution on line 8. If not, you should be OK.

Also, you need to enter a substitute Form 1099-R to report the one you will receive in 2027 on your 2025 return. Here are the steps:

To enter a substitute form 1099-R in Turbo Tax Desktop follow these instructions:

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. On the screen that says Tell Us Which 1099-R You Have choose I need to prepare a Substitute 1099-R
6. Enter the distribution amount in box 1 of the substitute 1099-R
7. Enter the earnings in box 2(a)
8. Enter code "P" in box 7 (And code "J" if from ROTH IRA)

To enter a substitute form 1099-R in Turbo Tax Online follow these instructions:

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 distribution into the Form 1099-R entry screens
7. Enter the distribution amount in box 1 of the substitute 1099-R
8. Enter the earnings in box 2(a)
9. Enter code "P" in box 7 (And code "J" if from ROTH IRA)
10. 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

[Retired Bill]

I am sorry to get back to you so late but I wanted to run your instructions through on a second "copy".  I created the substitute 1099-R and it generated a Form 4852.  

Now I have double the penalty on form 5329-T.

My original excess contribution came right off the Roth Contribution Limit Worksheet.  All I did was compute the additional other income and added it back to Sch 1.  Created a penalty and more excess Roth.  Then doing the above recommendation doubled it.

[RogerD1]

When you removed your excess Roth contribution from your account, did you also remove the entry in TurboTax for it?  If not:

1. Go to the Deductions and Credits Section and click Update for Traditional and Roth IRA Contributions
2. On the "Tell us about your IRAs" screen, uncheck the box for Roth IRA contribution under your name, then Continue
3. On the pop-up "Are you sure you want to delete?" select "Yes, delete IRA data" and Continue, then Continue on the next page

Next will be instructions on how to get rid of the penalty for the earnings.

1. Go to the Income section
2. Click Start or Update for the IRA, 401(k), Pension Plan Withdrawals (1099-R) section
3. On the 1099-R Summary screen, click Done
4. Click Continue until you get to a screen "Let's see if we can lower your tax bill" - click Continue
5. On the "Tell us which person may have qualified for a penalty exception", click the pencil icon to the right of your name
6. Click IRA on the "Identify the plan" screen, then Continue
7. On the "These situations may lower your tax bill", scroll down and toward the bottom, you will see "Corrective distributions made before the due date of return" - enter the amount of the earnings in that box ($350 for you)

This will eliminate the 10% penalty on the earnings distribution.