Same-Year Withdrawal vs. Excess Contribution Withdrawal of Non-Deductible Contribution from Traditional IRA

[Engineer_76]

Hi Folks,

My question is about how the IRS will treat just a regular "same-year" withdrawal compared to a "same-year" excess contribution withdrawal from a Traditional IRA. My contributions are non-deductible.

Quick Background: I wanted to withdraw $1,000 from my existing Traditional IRA. But, out of a variety of confusions, I filled-out, signed, and submitted a "Withdrawal of Excess Contributions" form for $1,000 to T. Rowe Price. T. Rowe Price is currently processing the form, and I can't cancel this transaction. I filled out the form in March 2024 for withdrawal of excess contributions for the 2023 tax year ($6,500 contribution was made in 2023 calendar year). I am not anywhere near 59.5 years old.

What the heck do I do at this point? I a concerned that the 1099-R info that T. Rowe Price sends to the IRS in early 2025 will show "withdrawal of excess contributions" as the reason, then the IRS will notice that I only made $6,500 contribution in 2023, and flag this as a problem. I understand from online searches that withdrawal of excess contributions does not incur the 10% penalty, whereas just a regular withdrawal does. I also understand that I have to pay taxes on earning either way. What should I do to relay to the IRS that this was an error, and that I am happy to pay the 10% penalty. How do I actually do all that?

Thank you for help with this. 

[DavidD66 · Accepted solution]

Don't worry.  Wait until T. Rowe Price has processed the request and sent you the $1,000.  Once that happens, contact them again and tell them that the distribution was a return of contribution for your 2023 contribution.  It will just be a matter of them re-coding the distribution in their system.  It will be as if you never made the contribution, therefore you will report an IRA contribution of $5,600 on Form 8606 for 2023.  

[Engineer_76 · Accepted solution]

Thank you so much for that answer. That is extremely helpful!

1. Does that mean that, after I contact T. Rowe Price and tell them that this distribution was a return of contribution, the re-coding will eventually generate a 1099-R showing the correct distribution code that I should expect to get in early 2025?

2. I understand that I am still liable for taxes on the earnings on the $1,000 while the funds were in the IRA for about 13 months (most of 2023 and first two months of 2024). Would the 1099-R with the correct code also generally have the information on the taxable amount (maybe Box 2a)?

Thank you again, and I really appreciate your expert guidance. 

[Engineer_76]

@DavidD66 

Just wanted to give an update that my problem was solved. Apparently, T Rowe Price’s back-office noticed that my Excess Contribution Withdrawal Form did not make sense to them (because I had not actually made excess contributions), so they flagged it. When I called again after seeing your response, they just cancelled/ voided the form. 

Thanks again. The various tax forms and terminologies can get overwhelming for laypersons like me, and it is very comforting to have experts like you providing the rest of us some calming perspective!

[GayleS03]

Slightly different Question on same topic...  Sister made 2023  contributions to both a Roth ($4k) and Traditional ($2k) IRA, and realizes both were a mistake. (Not eligible for Roth, can't deduct the traditional and doesn't want to mingle pre/post tax $ in the traditional IRA.)  I think she can withdraw the Roth contribution as an excess contribution (if done before filing the 2023 return and can use a timely filed extension to give him until 10/15/24.) However, I can't find clarity on whether she can remove the $2k in the traditional IRA as an excess contribution. We don't want her to get trapped into having to prorate the withdrawal between pre/post tax dollars, etc. 

[AnnetteB6]

The $2000 that was contributed to the Traditional IRA can be requested as a 'return of contribution' rather than an 'excess contribution'.  This must also be done before the due date of the return, plus extensions.

See the following information from the IRS to learn more:

Publication 590-A Return of Contribution

@GayleS03 

[GayleS03]

Thank you for the concise and clear answer. Found the spot, getting it fixed. Fabulous!