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

Forum|Forum|2 years ago
March 6, 2024
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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.

Best answer by DavidD66

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.

DavidD66Answer

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Engineer_76Author

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.