Withdrawing Excess Roth IRA Contribution

[GM45]

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

[MarilynG1]

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. 

[GM45]

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

[DanaB27]

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:  

• 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 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".

[GM45]

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.

[DanaB27]

It seems you need to correct your answer to the excess contribution question:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen delete the entry since you did not have any excess Roth contribution from the prior years.
6. On the penalty screen and enter the excess contribution amount withdrawn (ignore earning or losses for this entry).

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.

[GM45]

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.

[DanaB27]

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.

[CJB-1959]

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.