Excessive Roth IRA 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)

[KrisD15]

You won't file Form 5329 if you make the 2024 correction before April 15, 2025. 

Ask the financial institution the amount of earnings attributed to the over contribution. 

They can also tell you how much you over contributed, or TurboTax will calculate that as well. 

To have TurboTax tell you the amount you over contributed, enter your contribution under

• Deductions & Credits
• Retirement and Investments
• Traditional and Roth IRA Contributions     START

(the program CANNOT tell you the amount of earnings to withdraw, since the earnings are based on your account's investments)

[nobodyimportant2425]

Thanks for the quick reply. I spoke with Schwab and they gave me the amount (say 7,500) so I will know how to fill out their forms, but they did say that I will be getting a 1099-R for my 2025 taxes.

Is it fair to say I will be expected to pay interest income on only the 500 next year?

[DanaB27 · Accepted solution]

Yes, if Schwab said your distribution will be $7,500 then your earnings would be $500. No, the earnings are taxable in the year you made the excess 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.

Note, Form 5329 part I will be included to report the exception on the 10% early withdrawal penalty.

Also, make sure you enter in the IRA contribution section that you withdrew the excess contribution by the due date:

1. lick 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.

"In most cases, the net income you must withdraw is determined by the IRA trustee or custodian. If you need to determine the applicable net income on IRA contributions made after 2024 that are returned to you, use Worksheet 1-4. " (Pub 590-A)