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Withdrawal of excess Roth Contribution in February 2025 for year 2024 - 1099-R 2025?

Forum|Forum|1 year ago
February 6, 2025
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Hello,

I just withdrew (Feb. 6, 2025) my total May 2024 Roth contribution of $8000 (made for tax year 2024) and my broker will figure the Net Income Attributable (NIA) and remove that as well.

They indicated I will receive a 1099-R at end of 2025 with the NIA earnings which will be taxable... they said taxable and reported with 2025 tax return since that is when I received the earnings, but I am not sure this is correct?

Do I need to somehow create a "dummy" 1099-R for 2024 and pay tax on the NIA this year, or can it wait until 2025 when I have the 1099-R in hand? I don't know what that 1099-R will look like, or if I will need to file an amended 2024 tax return, with that new 1099-R, to pay the tax on the NIA; OR, can I just use that 1099-R for next year's 2025 taxes? Part of the earnings I guess technically were earned in 2024 and part in 2025, since the NIA spans two years, but I am receiving the full earnings in 2025. I don't anticipate penalties, but does the IRS charge interest on taxes paid late with an amended return?

Too many questions, I know!

Thank you for any help.

Best answer by dmertz

"They indicated I will receive a 1099-R at end of 2025 with the NIA earnings which will be taxable... they said taxable and reported with 2025 tax return since that is when I received the earnings, but I am not sure this is correct?"

That's correct if the distribution is from a designated Roth account in an employer-provided retirement plan like a 401(k), but not for a distribution from a Roth IRA. However, since you mentioned an $8,000 contribution, it's reasonable to assume that the contribution being returned is a Roth IRA contribution and the taxable earnings are to be included in income on your 2024 tax return. As such, the taxable gains are reportable on your 2024 tax return. You do this in 2025 TurboTax by entering a code JP 2025 Form 1099-R with the total amount distributed ($8,000 plus gains) in box 1 and the gains in box 2a. (TurboTax will ask for the year of the form.) You can do this by either generating a dummy From 1099-R as if you have already received it or you can amend your 2024 tax return in 2025 after receiving the actual form.

To avoid TurboTax assessing a penalty due to the code-J being present to indicate that this distribution is from a Roth IRA, claim the penalty exception on the box 2a amount for Corrective distributions made before the due date of the return.

There is no requirement in the tax code that a return of a Roth IRA contribution before the due date of the tax return be a return of an excess contribution.

T

ThomasM125

If the withdrawal was a correction distribution to reverse the contributions you made in 2024 to apply to that year, then you should report the earnings in 2024. You can do that on your 2024 return if you haven't filed it yet. You will need to prepare a substitute Form 1099-R for your 2024 return as follows:

To enter a substitute form 1099-R in Turbo Tax Desktop follow these instructions:

Find the Retirement Plans and Social Security menu option in the Wages and Income section of TurboTax
Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
Choose Add (Another) 1099-R
Choose I'll type it in myself
On the screen that says Tell Us Which 1099-R You Have choose I need to prepare a Substitute 1099-R

To enter a substitute form 1099-R in Turbo Tax Online follow these instructions:

Find the Retirement Plans and Social Security menu option in the Wages and Income section of TurboTax
Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
Choose Add (Another) 1099-R
Choose I'll type it in myself
Choose the source of your 1099-R form
Enter your pension income into the Form 1099-R entry screens
When you come to the screen that says Do any of these situations apply to you? Check the box that says I need to file a substitute 1099-R and follow the instructions

For the entries:

Enter the distribution amount in box 1 of the substitute 1099-R
Enter the earnings in box 2(a)
Enter code "8" in box 7 (And code "J" if from ROTH IRA)

You are subject to interest and penalties on late payment of income taxes on an amended return.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

D

DeeMRAuthor

Thanks for the reply!

I was reading the instructions Vanguard provided and they said to refer to instructions for IRS form 8606. I read through those and I don't need to file a 8606, but the instructions do mention on page 6, Return of IRA Contributions, "you must include the amount of the distribution of the returned contributions you made in 2024 and any related earnings on your 2024 Form 1040, 1040-SR, or 1040-NR, line 4a. Also include the related earnings on your 2024 Form 1040, 1040-SR, or 1040-NR, line 4b. Attach a statement explaining the distribution."

So I am wondering if instead of a substitute 1099-R I can just over-ride 4a and 4b... the tax result appears to be the same both ways when I tried each?

I am sure I will get a 1099-R in 2026 for this amount, but I am guessing box 7 will have a "P" - taxable in 2024. I won't need an amended return because I used 4a & 4b?

O

Opus 17

Employee

You must report the information on your 2024 return, and the earnings attributable are taxable on your 2024 return, even though the actual withdrawal occurred in 2025. This is per the regulations and form instructions.

You will also report the 1099-R on your 2025 tax return, but it should be coded in such a way that you don't pay tax again on the NIA.

E

elpram215

I am in a similar situation, but I am still eligible for partial Roth contribution (income between the $10,000 reduced contribution range). I withdrew the full $7,000 2024 Roth contribution in Jan '25. When reporting the 1099-R, I entered code P and J in box 7. My question is can I claim the 10% penalty waiver for the total excess earnings or only partial? The total earnings withdrawn is $1,100. Out of the $7,000 contribution withdrawn, about $3,000 is the considered "excess contribution."

O

Opus 17

Employee

@elpram215 wrote:

I am in a similar situation, but I am still eligible for partial Roth contribution (income between the $10,000 reduced contribution range). I withdrew the full $7,000 2024 Roth contribution in Jan '25. When reporting the 1099-R, I entered code P and J in box 7. My question is can I claim the 10% penalty waiver for the total excess earnings or only partial? The total earnings withdrawn is $1,100. Out of the $7,000 contribution withdrawn, about $3,000 is the considered "excess contribution."

The SECURE 2.0 act removed the 10% penalty on excess earnings withdrawn before the deadline.

If you had $3000 excess but removed $7000, then about $500 of the earnings is excess withdrawn before the deadline (not subject to the penalty) but $600 is other earnings, seemingly subject to the penalty. But, regular Roth IRA withdrawals are always contributions first, earnings last, so you should have about $3000 of "excess contribution", $500 of attributed earnings and $4600 of regular withdrawal of contributions, assuming you made contributions in a prior year.

I'm not sure how this situation should be reported.

@dmertz what do you suggest?

D

dmertzAnswer

Employee

"They indicated I will receive a 1099-R at end of 2025 with the NIA earnings which will be taxable... they said taxable and reported with 2025 tax return since that is when I received the earnings, but I am not sure this is correct?"

That's correct if the distribution is from a designated Roth account in an employer-provided retirement plan like a 401(k), but not for a distribution from a Roth IRA. However, since you mentioned an $8,000 contribution, it's reasonable to assume that the contribution being returned is a Roth IRA contribution and the taxable earnings are to be included in income on your 2024 tax return. As such, the taxable gains are reportable on your 2024 tax return. You do this in 2025 TurboTax by entering a code JP 2025 Form 1099-R with the total amount distributed ($8,000 plus gains) in box 1 and the gains in box 2a. (TurboTax will ask for the year of the form.) You can do this by either generating a dummy From 1099-R as if you have already received it or you can amend your 2024 tax return in 2025 after receiving the actual form.

To avoid TurboTax assessing a penalty due to the code-J being present to indicate that this distribution is from a Roth IRA, claim the penalty exception on the box 2a amount for Corrective distributions made before the due date of the return.

There is no requirement in the tax code that a return of a Roth IRA contribution before the due date of the tax return be a return of an excess contribution.

E

elpram215

Thank you for the response @Opus 17!

@dmertz My situation is slightly different than the OP. My AGI falls between the reduced contribution limit range. Here is a summary breakdown:

2024 Calculated Excess Contribution: $3,000

2024 Roth Contribution: $7,000 - all withdrawn in January 2025.

2024 Contribution Earnings: $1,100 (calculated by Vanguard from the $7,000 withdrawn contribution)

Per @Opus 17 , since only $3,000 is considered excess contribution based on my AGI, technically about ~$500 is the excess earnings that is eligible for penalty exception, while the remaining $600 earnings is subject to 10% penalty.

However, @Opus 17 also said that priority for regular Roth IRA withdrawal is contribution first, earnings last. Under this priority, $3,000 is excess contribution, $500 is excess earnings, and $4,600 can be claimed as "regular contribution withdrawal." I have had my Roth IRA for 10 years, contributed to it each year.

Any suggestion is appreciated, @dmertz ! 🙏

D

dmertz

Employee

@elpram215 , the fact that only $3,000 was excess is irrelevant to how the return of contribution is treated on your tax return.

The Roth IRA ordering rules do not apply to a return of contribution reported with codes J and P.

As I understand it you made a $7,000 Roth IRA contribution in 2024, in early 2025 you requested that that $7,000 contribution be returned and Vanguard distributed $8,100 after adjusting for investment gain. The $1,100 is taxable on your 2024 tax return but is not subject to any early-distribution penalty.

In TurboTax, enter the $7,000 Roth IRA contribution. When TurboTax indicates that $3,000 is an excess contribution and asks how much you had (or will have) returned to you, enter $7,000. Separately, enter a code JP 2025 Form 1099-R with $8,100 in box 1 and $1,100 in box 2a. This will cause TurboTax to properly include the $1,100 on Form 1040 line 4b. You'll also need to claim a penalty exception on the $1,100 for Corrective distributions made before the due date of your tax return.