Hello and sorry, I am getting frustrated with the program but maybe it is my fault.
I have no earned income but I contributed 8k to a Roth IRA in January 2024. I now realize I cannot make any contribution.
I entered the Excess amount in TurboTax Deluxe and it calculated tax on this 8k in addition to money I withdrew from a Rollover IRA as spending money. I also indicated I was withdrawing that same excess 8k amount (will do it this year but before April 15, 2025). But it did not recalculate the tax I owe. What am I missing?
I believe I have to create a 1099-R to show the interest I made on that excess contribution so that this can be taxed?
Thank you very much.
Gerry
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If you indicated in TurboTax that you will withdraw your Excess Roth Contribution (plus earnings) before the tax filing date, you should not incur a penalty (or be taxed on that amount).
You can create a 1099-R to enter in TurboTax to report this, with Box 1 showing the amount of the Excess Contribution plus Earnings, and Box 2 showing only the Earnings amount.
In Box 7, use Codes P and J.
When asked What Year is your 1099-R, enter 2025.
Here's more info on Creating 1099-R to Report Excess Contribution and Earnings.
Thank you Marilyn!
1. I am 69-years old. Is the J code then correct for me as it says "Early Distribution ....". I also own the Roth account for more than 5 years.
2. I don't understand the P code here as is says now "Return of Contribution taxable in 2023". I made the contribution in 2024 and therefore the earnings on it too in 2024. So wouldn't the earnings be taxed in 2024?
Thanks again,
Gerry
1. Yes, for a return of an excess Roth IRA contribution plus earnings you need to use code code J with code P (IRS).
2. Yes, 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.
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:
To create a Form 1099-R in your 2024 return please follow the steps below:
Thanks Dana, I appreciate the help.
I have done the steps but when I look at Form 5329 that is created, it looks like it is taxing me on the $8,000 contribution, not just on the earnings. In Part IV of the form, on line 25 it calculates 6% of the contribution (the 8k) as tax. (I know I have to pay tax on the earnings.) I said I was withdrawing the 8k + earnings in the program but somehow it is still taxing me?
I am 69. Another thing I don't understand is Line 18 in Part IV of the form. It says "18. Enter your excess contributions from line 24 of your 2023 Form 5329. See instructions. If zero, go to line 23" And the program puts my 8K here.
But I had no Form 5329 in 2023.
Line 23 says "Excess contributions for 2024 (see instructions) ." There is nothing here but this is where I think the my $8,000 Excess should be. The program seems to think I made the excess contribution in 2023.
Should my Corrective Distributions be the 8k excess + earnings?
Thanks very much.
It seems you need to correct your answer to the excess contribution question:
No, you do not need to have an entry on line 23 since you are requesting the return of the excess Roth contribution plus earnings by the due date.
Thanks again Dana. I was able to correct that now.
All that shows up on Form 5329 now is in Part I where it shows the Earnings on the excess contribution plus nothing now in Part IV. Does that seem right.
Conceptually it seems to me I made an excess contribution, but then I withdrew it and its earnings, so it is like the excess contribution never happened. Other than paying the taxes on the earnings. Does that sound right?
How does the IRS know you withdrew the excess contribution and earnings?
Also there is another section in my return: "Additional Information From 2024 Federal Tax Return" where I state I made an erroneous contribution but I have removed it before the filing date. Do I leave that there - it is linked in the forms then to 1040-SR Line 4a.
Glad I found the Community! Thank you.
Yes, you will only have Part I of Form 5329.
Yes, that is correct when you withdraw the excess contributions plus earnings then it is like the excess contribution never happened.
Yes, you leave the "Additional Information From 2024 Federal Tax Return" this will let the IRS know that you withdrew the excess contribution plus earnings .
When you request the withdrawal of excess contributions plus earnings with your financial institution by the due date they will issue a 2025 Form 1099-R at beginning of 2026 . This will let the IRS know that the excess has been withdrawn. This Form 1099-R will be taxable on your 2024 return and you can either entered the Form 1099-R with code P and J already now with my previous instructions or wait until you get the Form 1099-R and then amend your 2024 return.
Thank you for sharing this information as I did the exact same thing with respect to making an $8000 Roth IRA contribution that I was not eligible to make as I anticipated that I would be working part-time but did not come to terms with the prospective employer.
My daughter contributed in 2024 to her Roth Ira only to find out after getting married they made too much so she withdrew the contribution and the earnings in 2025 before the deadline. I understand the explanation to create the 1099R using the codes P & J, and indicating this will be a 1099R for 2025. I did that and thought all was good, until I read your comment about Federal withholding, now I am confused about the Federal withholding. Vanguard withheld taxes on the 2024 excess withdrawal, I can see it on her activity, so do I still enter the taxes withheld in box 4 of the 1099R I created for 2025 on her 2024 tax return. I am assuming I would, but will the taxes Vanguard withheld apply to the 2024 return since they were collected 4/1/2025? If so, including the taxes withheld on the 1099R I created, will all be good when she gets the actual 2025 1099R in January of 2026? I want to avoid amending their 2024 return next year. We would just put the 2025 1099 she gets next year aside and not enter it into 2025's tax return? We do not pay state taxes so she has one less thing to worry about. OR should I not enter the taxes in the 1099R I created, I know were withheld on 4/1/25 for the 2024's excess contribution, and then apply those taxes paid to 2025's return in 2026? I am hoping you say the taxes Vanguard withheld on 4/1/25 will be applied to 2024's return and there will be nothing to do on 2025's return. Thank you.
I am really sorry but I am not able to help here. I followed the directions by Dana and others. You can see I can further questions and Dana answered those. I followed her advice and it all seemed to work. Turbotax filled out that 5329 form and also calculated how much extra tax I would have to pay.
Note I did not have any Federal withholding like you seemed to have with Vanguard. Fidelity calculated how much my excess contribution earned but they did not withhold any taxes. (I cannot even see how that would work.) Turbotax calculated how much extra tax I had to pay.
Hopefully Dana or someone will see your question.
I am sorry but I am not able to help you here. I followed the advice of Marilyn and Dana and it seemed to work. Notice I had extra questions and Dana answered those. Turbotax created that Form 5239 and also calculated how much extra tax I needed to pay.
I did not have any Federal withholding as you had with Vanguard (I don't even know how that would work from a Roth). Fidelity calculated the earnings on my excess contribution but did not withhold anything.
I hope Dana or someone can see your question.
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