Solved

Need Help with Addressing Excess IRA Contributions for Tax Year 2024

Forum|Forum|1 year ago
February 17, 2025
1 reply
0 views

Hello all,

I have filed my returns for 2024 and this is the first time I was alerted by the Turbotax software that my contributions to my Roth IRA for 2024 are considered excess. This occurred because a conversion for my 401k to Roth 401k significantly bumped up my 2024 income to the limit such that the entire $7k contribution made to my IRA in 2024 is excess.

I need help with the next steps to properly withdraw the excess amount as I am aware that I have to withdraw both the original contribution plus any earnings.

This is my situation. I typically save $$ so that I max out my Roth IRA at the beginning of every year, so currently I have made $7k contributions for both 2024 and 2025 already. They are already completely invested in securities i.e. no cash in retirement account. When I filed my return for 2024, the 6% penalty was already added to the overall federal return amount.

Since I have time to withdraw the excess amount before the filing extension deadline, what are my next steps?

These are some questions I have:

1. Should I calculate and withdraw the amount myself? From the IRS calculations, I would withdraw 7k + earnings calculated from the FMV the moment the excess contribution was added until the FMV when I withdraw the amount.

2. Does the 2025 contribution impact my calculations in any way?

3. Should I contact my bank (JPMorgan Chase) to assist in calculations and withdrawal process to make the withdrawal amount is accurate.

4. I am aware that once I withdraw the amount, I will have to amend my file return and I will be receiving forms that involve the tax and penalty on my earnings. What are those specific forms?

Appreciate anyone who can help out with this issue. I can answer any questions that clarify the context above.

Not A Product Question

Best answer by Opus 17

OK, got it. So then, did you already file your return? If you plan to remove the excess on time, you would not pay the 6% penalty.

1. No, the IRA custodian will do it for you. You need to tell them that you must "withdraw excess", don't just make a regular withdrawal. They will know what to do.

2. No.

3. Yes. In fact, you must ask for a "withdrawal of excess contribution" to perform the procedure correctly. If you only withdraw the excess as a regular withdrawal, you are following a different procedure.

4. If you have already filed and paid the 6% penalty, but you want to do the "removal of excess procedure", then this is what happens:

1. The IRA custodian sends you your contribution plus the attributed earnings. This is taxable on your 2024 return even though the withdrawal occurs in 2025.

2. Prepare an amended return. Start by reporting the excess Roth, but tell Turbotax you will remove the excess on time. That will remove the 6% penalty, leading to a credit adjustment as part of the amended return.

3. You will need to include a substitute 1099-R for the withdrawal, since you won't get an actual 1099-R until next year. Put the entire amount of the withdrawal in box 1, and the taxable amount (attributed earnings, as calculated by the IRA custodian) in box 2a. Enter codes P and J in box 7. You will pay income tax on the earnings, but they are not subject to an additional 10% penalty because of changes in the SECURE 2.0 act a couple years ago.

4. Depending on the amount of earnings (subject to income tax) and your tax rate, your amended return might have you owing more tax or getting a refund, after you pay the tax on the earnings but get credit for the penalty you no longer owe.

Now, if you earned more than 6% on your contribution, and want to leave it in the IRA because the earnings are more than the penalty, there is a way you can do that as well, I can give those details if you want.

O

Opus 17

Employee

A conversion is not a contribution and conversions do not count against your contribution limit.

When preparing your return, conversions are ONLY entered by means of the 1099-R from the traditional IRA, you do not also enter them as contributions.

Go back and re-check to see if you really have an excess Roth IRA contribution.

S

SageofWAuthor

I don't think you understand the context of question. I was stating the reason why I have an excess contribution for 2024. This is due to a 2024 conversion from a 401k to Roth 401k that creates a taxable event that bumps up my MAGI and thus hitting the IRS limit, disallowing me from making an IRA contribution that year.

O

Opus 17Answer