Vanguard withheld tax on the earning related to the 2024 excess Roth IRA withdraw, will the tax withheld be applied to 2024's taxes even though they withheld it in 2025?

[gk5040]

In early 2024, my daughter contributed 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 4/15/25 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 a comment about Federal withholding, now I am confused about the Federal withholding.  Vanguard withheld Federal taxes on the 2024 excess withdrawal earnings, 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 (for tax year 2024) in January of 2026?  I want to avoid amending their 2024 return next year.  I am assuming if all is correct and the tax withheld is applied to 2024's taxes, we would just put the 2025 1099R 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 Federal taxes Vanguard withheld into the 1099R I created, and then apply those taxes paid to 2025's return in 2026? I know the taxes were withheld on 4/1/25 for the 2024's excess contribution, its on the activity for her Vanguard acct. 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.

[DanaB27 · Accepted solution]

You don't need to enter the withheld taxes when you enter the 2025 Form 1099-R with code P and J on the 2024 return. The withheld taxes will be applied on your 2025 return since the withholdings are reported in the year that the tax was withheld. Therefore, you will ass the 2025 Form 1099-R on the 2025 return too. The 2025 code P will not add anything to your income in the 2025 tax return but the withholdings will be applied to 2025.

To enter a 2025 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.

Also make sure you indicate in the IRA contribution interview that you withdrew the excess contribution by the due date:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth IRA contribution
5. Continue until the penalty screen and enter the excess contribution amount withdrawn.

[gk5040]

Thank you so much for your detailed thorough response, this will be extremely helpful to many TT customers.  I have 2 questions to confirm:  

1.  Under the question "did you use your IRA to pay for any of these expenses", you mention to enter the earnings  under "Corrective distributions made before the due date of the return".  I thought I would have entered the amount of the Roth excess contribution withdrawn or the total withdrawn distribution, excess and earning?  I had entered only the excess amount but changed it after reading your response.  Is earnings only the correct number to enter in this blank?  

2.  Also want to verify in the IRA interview when it asks about the "contributions withdrawn before the due date" I enter the contribution only, not the contribution plus the earnings. 

Thank you for clarifying.  

[DanaB27 · Accepted solution]

1. Only the earnings in box 2a are taxable and will be listed on line 1 of Form 5329, therefore, you only need to enter the earnings  under "Corrective distributions made before the due date of the return".

2. Correct you only enter the contribution amount withdrawn not the the contribution plus the earnings.