How to amend 2024 tax return for return of excess IRA contribution

infcl
infcl Member Posts: 1 Newcomer
in Filing my taxes

On December 31, 2024, I contributed the max to a traditional IRA ($7000). In early January 2025, I bought 25 shares of VTI in the IRA using that money.

I thought I was within the income limit for contributions because in 2024 I had $0 W2, however, I had over $146,000 in stock options proceeds which I later realized (after filing on FreeTaxUSA by April 15, 2025) also count as income. So my actual contribution limit is $0, which means I overcontributed $7000.

I want to undo the overcontribution so I don't get taxed by IRS 6% each year. I used the "net income attributable" formula to calculate that the $7000 has turned into about $7800, which I already talked to the brokerage to return the excess contribution, which they did by selling the shares and transferring to my bank account. Now I need to amend my return.

My questions:

  1. I see I need to "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." - https://www.irs.gov/instructions/i8606#en_US_2023_publink25399ed0e947:~:text=However%2C%20you%20must-,include%20the%20amount,-of%20the%20distribution However, it's confusing to do that via FreeTaxUSA because of the user interface. Where do I need to edit? I went to Deductions/Credits → IRA Contributions, the only two fields are "Did you make any traditional or Roth IRA contributions during 2024?" and "Did you have any excess IRA contributions in 2023?", both don't seem like what I want.
  2. In 2024 my residency was NJ and in 2025 my residency will be Texas (tax free). I assume I need to amend both my federal and NJ state filing. Where do I edit for the NJ filing?

Thanks.

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Answers

  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 615

    Hi infcl,

    Thank you for the detailed explanation.

    First, you will likely need to amend your state returns if the contribution impacted the income or deductions on your state return. I suggest you contact FreeTaxUSA Customer Support. A tax specialist can help you make an accurate determination by reviewing your original returns.

    Second, the software will calculate your excess IRA contribution, since you have $0 earnings/qualifying income, so continue in the Deductions/Credits > IRA Contributions section to answer all the questions to minimize or avoid penalties. Next year you will get a 2025 1099-R for the distribution withdrawal and will need to enter that on your 2025 return and you may need to amend your 2024 return as well when that form comes. So, you may want to hold off amending until that point.

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