Do I still have to report Roth IRA contributions and form 1099-R

gvasquez925

During the beginning of 2024, I began contributing to a Roth IRA but as the year went by, I realized my income was going to be way too high to qualify for any contributions for a Roth IRA. I called Fidelity and withdrew all my funds. It was only around $900 and took the penalty.

My question is, do I still have to report my Roth IRA contributions and submit the 1099-R form, or withdrawing all my funds and deleting my account basically "undo" everything and I can act like I never created a Roth IRA in the first place?

AleceN

Hello! Thank you for contacting the FreeTaxUSA Community!

There are several options when dealing with excess IRA contributions.  You have taken the correct measures to withdraw the excess. You will need to report the 1099-R received on your return. Here are options for excess contributions:

1. Withdraw your excess contributions and earnings prior to the April filing deadline. This will allow you to avoid the 6% penalty. You will still need to report the earnings from the excess contribution and you will be subject to tax on those earnings.  
   See Page 30 under “Contributions Returned Before Due Date of Return” and Page 34 at: 
   https://www.irs.gov/pub/irs-pdf/p590a.pdf 
2. Apply the excess contribution to next year’s contribution (recharacterizing excess contributions). Until it has been applied in a future year, the 6% annual penalty will remain in place.  If applying to the next year, this will allow you to not have to withdraw any of the funds.  If you expect to contribute to your IRA next year, you will need to consider the amount contributing and the excess being applied.  See Pages 28-29 and 35 of Pub 590A at the link listed above. 
3. Withdraw the excess contribution and earnings next year or in a future year. Please note that the 6% penalty on excess contributions will remain in place each tax year until the excess contribution is withdrawn OR option #2 above is taken. 
   See Page 34 under “Excess Contributions Withdrawn After Due Date of Return” at the link listed above. 

If you select the first option, you will need to contact your IRA administrator to withdraw the excess contributions plus earnings. In the software, you will want to indicate that you did withdraw (or will withdraw by the deadline) the excess contributions. This will allow the software to eliminate the 6% excess contribution tax for you. This will be all that you need to report in the software for now. 

Next year, your IRA administrator will send you a Form 1099-R reporting the excess contribution and earnings withdrawal. At that time, you will want to amend your 2023 tax return to report the earnings from your withdrawal. When that time comes, we will be happy to assist you further if needed.